Document of

The World Bank

Report No: 25020 UNI

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 75.5 MILLION(US$100 MILLION EQUIVALENT)

TO THE

FEDERAL REPUBLIC OF NIGERIA

FOR A

LAGOS URBAN TRANSPORT PROJECT

October 25, 2002

AFTTRAFC12Africa Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective 06/21/2002)

Currency Unit = Naira1 Naira = US$0.0854701

US$1 = 117 Naira

FISCAL YEAR2003 -- 2007

ABBREVIATIONS AND ACRONYMSBOT Build Operation and Transfer LSMT Lagos Statc Ministry of Transportation

CAS Country Assistance Strategy LSM W Lagos State M inistry ofW orks

CBA Cost Benefit Analysis LSMPT Lagos State Ministry of Public Transportation

CBD Central Business District LSMWAPA Lagos State Ministry of Women Affairs and Povcrty

Alleviation

CFAA Country Financial Accountability Assessment LSMWT Lagos State Ministry ofW orks and Transport

CLA Central Licensing Authority LSTC Lagos Statc Transportation Corporation

CMT Corporatc M anagemcnt Team LUTP Lagos Urban Transport Project

CPAR Country Procurement Assessment Report LUTPO Lagos Urban Transport Project Office

CY Calendar Year M D Managing Director

EA Environment Assessmcnt MEPP Lagos State Ministry of Environment and Physical

Planning

EMF Environmental Management Framework MOA Memorandum of Agreement

EMP Environmental Management Plan MVA Motor Vehicle Administration

ERR Economic Rate of Return NGO Non Governmental Organization

FARAH Financial Accounting Reporting and Auditing NPA Nigerian Ports Authority

Handbook

FM Financial Management NPTU N igerian Police Traffic Unit

FM C Financial M anagement Consultant NPV Net Present Value

FM E Federal Ministry of Environment NRC Nigerian Railway Corporation

FM F Federal Ministry of Finance PCC Public Procurement Commission

FM T Federal Ministry of Transport PDO Project's DevelopmentObjective

FMOE Fedcral Ministry of Environment PIP Project Implementation Plan

FM W H Federal Ministry of Works and H ousing PPR Post Procurcment Review

FM Rs Financial M onitoring Reports PRIU Procurement Reform Implementation Unit

FR Financial Regulations PRSP Poverty Reduction Strategy Paper

FRR Financial Ratc of Return PU Procurement Unit

G IS Geographical Information Systcms RPF Resettlement Policy Framework

GPN General Procurement Noticc PWB Public Works Bureau

IASs Intcrnational Accounting Standards PBM R Performance Based Maintenance & Rehabilitation

IAU Internal Audit Unit QCBS Quality and Cost Based Selcction

IBRD International Bank for Reconstruction and RBMT Rail Based Mass Transit

DevelopmentICB International Competitive Biding RAP Resettlement Action Plan

IDA International Development Association SA Special Accounts

IEC Information Education Communication SFAA State Financial Accountability Assessment

IMT intermediate Mcans of Transport SLA State Licensing Authority

ISA International Standards on Auditing (ISAs) SOE Statement of Expenscs

ISU Interim Strategy Update TF Transport Fund

LAM ATA Lagos M etropolitan Area Transport Authority TM P Transport Master Plan

LASEPA Lagos State Environmental Protection Agency TM U Traffic M anagemcnt U nits

LASTMA Lagos Statc Traffic Management Authority TORs Terms of Reference

LGA Local Government Area TPP Transport Parastatals Project

LM A Lagos Metropolitan Area TSM Traffic Systems M anagement

LM TP Lagos M ass Transit Project TT Task Team

LSG Lagos State Government TTL Task Team Leader

LSFC Lagos State Fcrry Corporation VOC Vehicle Operating Cost

LSFSC Lagos State Ferry Services Company

LSPA Lagos State Parking Authority

LSM F Lagos State Ministry of Finance

Vice President: Callisto MadavoCountry Director: Mark D. TomlinsonSector Manager: Maryvonne Plessis-Fraissard

Task Team Leader: Dieter Schelling

NIGERIALAGOS URBAN TRANSPORT PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 22. Key performance indicators 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3

2. Main sector issues and Government strategy 3

3. Sector issues to be addressed by the project and strategic choices 6

C. Project Description Summary

1. Project components 10

2. Key policy and institutional reforms supported by the project 12

3. Benefits and target population 13

4. Institutional and implementation arrangements 13

D. Project Rationale

1. Project alternatives considered and reasons for rejection 14

2. Major related projects financed by the Bank and other development agencies 153. Lessons learned and reflected in the project design 164. Indications of borrower commitment and ownership 165. Value added of Bank support in this project 16

E. Summary Project Analysis

1. Economic 17

2. Financial 183. Technical 18

4. Institutional 195. Environmental 21

6. Social 227. Safeguard Policies 23

F. Sustainability and Risks

1. Sustainability 24

2. Critical risks 24

3. Possible controversial aspects 26

G. Main Credit Conditions

1. Effectiveness Condition 26

2. OtherProject Covenants 26

H. Readiness for Implementation 27

I. Compliance with Bank Policies 27

Annexes

Annex ]: Project Design Sunmnary 29Annex 2: Detailed Project Description 32

Annex 3: Estimated Project Costs 38

Annex 4: Cost Benefit Analysis Summary 39

Annex 5: Financial Summary 45

Annex 6: (A) Procurement Arrangements 46(B) Financial Management and Disbursement Arrangements 53

Annex 7: Project Processing Schedule 60

Annex 8: Documents in the Project File 62

Annex 9: Statement of Loans and Credits 63

Annex 10: Country at a Glance 65

Annex I 1: Letter of Sector Policy 67

Annex 12: Enviromnental Management Framework 74

MAP(S)

NIGERIALagos Urban Transport Project

Project Appraisal DocumentAfrica Regional Office

AFTTR

Date: October 24, 2002 Team Leader: Dieter E. Schelling

Sector Manager: Maryvonne Plessis-Fraissard Sector(s): Roads & highways (75%), Sub-national

Country Director: Mark D. Tomlinson government administration (21%), Ports, waterways and

Project ID: P074963 shipping (4%)Lending Instrument: Specific Investment Loan (SIL) Theme(s): Other urban development (P), Municipal

governance and institution building (P), Stateenterprise/bank restructuring and privatization (P),Regulation and competition policy (S), Other financial andprivate sector development (S)

frct-Finariciug.Data'.] Loan [X] Credit [ Grant [ ]Guarantee [ ] Other:

For Loans/Credits/Others:Amount (US$m): 100

Proposed Terms (IDA): Standard Credit

Grace period (years): 10 Years to maturity: 30Commitment fee: 0.5% Service charge: 0.75%

F^i~Inacihg Plau'US'rn): - Source i-Lo ci ... ;;Foreign .rTotal -BORROWER 33.65 1.35 35.00

IDA 53.69 46.31 100.00Total: 87.34 47.66 135.00

Borrower: GOVERNMENT OF NIGERIAResponsible agency: LAGOS METROPOLITAN AREA TRANSPORT AUTHORITY (LAMATA)Lagos Urban Transport Project Preparation Office (LUTPO)Address: Alausa, P.M.B. 1613, Ikeja, NigeriaContact Person: Dr. Anthony Mobereola, Special Assistant to the GovemorTel: 234-1- 773 3780(D/L) Fax: Email: lutpo@yahoo.co.uk

Tel: Fax: Email:

Estimated Disbursements ( Bank FY/US$m):.~ : ,-Y.L?Mit .t,.^2O93, .L r '`2004 .> ;te20051 7,.- 2006t ' ( NOT2007 - 2008 r- :

Annual 8.92 17.88 24.83 20.44 16.93 11.00

Cumulative 8.92 26.80 51.63 72.07 89.00 100.00

Project implementation period: Five YearsExpected effectiveness date: 02/28/2003 Expected closing date: 06/30/2008

OQ PAD FA R.l WM

A. Project Development Objective

1. Project development objective: (see Annex 1)

The capacity to manage the transport sector in the Lagos Metropolitan Area is sustainably improved andthe efficiency of the public transport network enhanced, such that it contributes measurably to povertyreduction.

2. Key performance indicators: (see Annex 1)

Following are the key outcome/impact indicators by which achievement of the project's developmentobjective (PDO) will be measured: (i) reduction of time and money (as a portion of the overall income)spent by poor households for personal travel activities; (ii) reduction of accidents (relative tovehicle-kilometers driven), and particularly of those.involving pedestrians; and (iii) number ofperson-days of labor created (by the road rehabilitation and maintenance program). Indicators (i) and (ii)will require the establishment of baseline surveys and regular follow up surveys by LAMATA. The

baseline surveys will be executed within six months of project effectiveness.

Following are the key output indicators by which successful implementation of the project will bemeasured. In respect of (i) Capacity Building these are (a) LAMATA is fully functional with all intemalprocedural manuals established and implemented by end of 2003: (b) the total financial contribution ofLSG in terms of budget and/or user charges contribution is at least US$7m equivalent in each year ofimplementation of the project; (c) LAMATA's operating costs remain less than 6% of its overallexpenditure; (d) the share of additional road user charges directly transferred to the Transport Fund (TF)amounts to at least 20% in 2003, 40% in 2004, 60% in 2005, 80% in 2006 and 100% in 2007 of totalLagos State Government (LSG) contribution; (e) Traffic Management Units in key LGAs are operationalstarting 2004; (f) average duration of procurement process per contract managed by LAMATA - fromissuing of bidding documents and request for proposal packages (RFP) until signing of contracts - willnot exceed three months; (g) time for payments of invoices of contractors, consultants and suppliers willnot exceed the period of one month. In respect of (ii) Road Network Efficiency Improvements theindicators are: (a) kilometer of roads rehabilitated; (b) kilometers of overlays placed; and (c) reduction ofthe total person delays at major junctions. In respect of (iii) Bus Services Enhancement the indicatorsare: (a) % of bus operation governed by new regulatory framework; and (b) implementation of the busdemonstration project. In respect of (iv) Water Transport Promotion the indicators are: (a)improvement/construction of jetties for small boats; (b) privatization of the Lagos State Ferry Services

Corporation - LSFSC - and or sale of state owned ferries; and (c) first ferry concession operational byend of 2004. Finally, in respect of (v) Preparation of Future Phases the indicators are: (a) a transportmaster plan for the Lagos Metropolitan Area has been produced in a consultative and participatoryprocess by 2004; (b) a plan for the restructuring of the transport sector institutions prepared in aconsultative and participatory process and implementation commenced in 2004; and (c) a concessionagreement with a private sector operator for the operation of the Agege to Iddo mass transit rail has beensigned by 2006.

These outcome and output indicators and their anticipated development over the project's life have beenagreed upon with the client and are contained in the Project Monitoring Framework which is annexed tothe transport sector policy letter of LSG (see Annex 11). LAMATA will, in its quarterly and annualreports, measure the achievements of these indicators against the targets set. At the occasion of themid-term review, planned for December 2004, the Project Monitoring Framework will be reviewed andadjusted, if necessary.

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B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: 23633-UNI Date of latest CAS discussion: June 14, 2001

The World Bank Group's work in the country is currently being guided by a Joint Interim StrategyUpdate (JISU) of May 21, 2001. An Interim Poverty Reduction Strategy Paper (PRSP) is beingformulated and it is planned to prepare a full Country Assistance Strategy (CAS) by end of CY 2003 onthe basis of the I-PRSP. The JISU is designed to structure Bank assistance to Nigeria through threestrategic pillars: (a) improve economic governance; (b) create the conditions for rapid private sector-ledpoverty reduction growth; and (c) enable local communities to take charge of their own development. Anadditional important consideration of the JISU is that Nigeria has sufficient resources on its own toachieve sustainable development, and resources brought by the donor community are always going to berelatively small compared to the resources Nigeria has available on its own. Therefore, the major role ofthe Bank will be to help Nigeria to build capacity to manage its own resources better.

After the June 6, 2002, Board meeting, Management conmmunicated its preference for thecomposition of the FY03 low case lending program to the Federal Government. Subsequentlythe Federal Government requested to borrow for the Universal Basic Education project and theLagos Urban Transport Project, which was also part of the base case scenario for FY03.Management supports this request. The UBE and Lagos projects together with a small newproject for Polio Eradication will result in total lending in FY03 of US$ 221 million, which lieswithin the low case as described in the Joint Interim Strategy Update and agreed by the Board in

May, 2001.

The project addresses all three pillars of the ISU: (a) on improving governance, the project includes acomprehensive institutional reform component that seeks, through the establishment of a metropolitantransport planning authority (called the Lagos Metropolitan Area Transport Authority - LAMATA), tocoordinate sector-wide management and decision making systems, increase budgetary accountability andimprove sector planning, financing and investment programming capacity. It is hoped that LAMATA willquickly become a sample of good governance, particularly in view of the possible creation of Transportor Highway Authorities in other states of the country; (b) on enhancing private sector led growth as ameans of improving service delivery, the project has a strong focus on developing an enablingenvironment for increased private sector participation in the sector through implementation of regulatoryand enforcement frameworks which reduce wasteful competition and creates a level playing field for theprovision of public transport. The project also supports road management and maintenance approacheswhich emphasize public/private partnerships and has a focus on increasing the productivity of roadtransport operations through road network efficiency improvements; and (c) on community participation,the project provides for the development of an information, education and communication strategy notonly to guide the involvement of transport users and beneficiary communities in the planning andimplementation of project elements, but also for use as a monitoring and evaluation tool to providefeedback on the project's impact. Through this strategy, it is expected that local governments,communities, user groups and civil society in general will be empowered to take an active interest inproject activities.

2. Main sector issues and Government strategy:

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Main Sector Issues

Introduction: Lagos is considered to be the sixth largest city in the world, and also one of the fastestgrowing. Its current population is variously estimated at between 12.8 and 15.0 million, and it is expected

that growth will continue at the current rate of nearly 6% per annum. The metropolitan area of Lagos is

also rapidly increasing, now extending beyond the Lagos State boundary into the neighboring state ofOgun in the north. As a result, passenger trips are growing in length as well as number. The depth and

severity of poverty is greater in the state as compared to Nigeria as a whole.

Urban growth and provision of infrastructure: The Lagos metropolitan area is by far the largest and mostcomplex urban area in Nigeria and, in economic terms, it is pre-eminent. It contains the largestmanufacturing sector and provides employment for over 45% of the skilled manpower of the country.

The commercial sector is similarly dominant with a vibrant local trading tradition. During the last twentyyears or more, levels of efficiency and productivity in the metropolitan area have been adversely affected

by the serious and growing weaknesses in the physical and social infrastructure needed to support the

basic needs of the population and the productive sectors. For example, as long ago as 1985 it wasestimated that investments by the private sector designed to offset inefficiencies of public sector

operations inflated the costs of production in Lagos by at least 30%. Failures in the transport system are asignificant contributor to this problem, and have resulted in major investments in staff transport byformal employers. Whilst Lagos is no longer the nation's capital, its role as the gateway to the country isstill unquestioned, with the nation's most important commercial sea and airports in the metropolitan area.

While supporting the infrastructure of a large capital city, the Lagos State Government has less revenuefor public services now that the functions of the Federal capital have moved to Abuja.

Traffic demand and supply: Total two-way passenger traffic crossing the three bridges between themainland and Lagos Island in 2001 was 1.59 million per day of which 77% were public transportpassengers. This represents an annual overall growth in passenger demand over the last decade of 3.4%

per annum. The growth in public transport trips was 5.0% per annum. There was a decline in large bus

(molue) passengers trips of 2.9% pa and a decline in taxi trips of 5.5% pa. However trips by minibuses

(danfos) have increased dramatically by 17.2% pa. Car trips have shown a slight decrease of 1.1 %.Travel by non-bus public transport (rail and water transport) has declined to less than 1.0% despite their

considerable potential. In many areas of the city, poorly served by roads, passenger-carrying motorcycles(okada) are now a significant component of the transport supply. Roughly 5,000 taxis are registered inthe State, and these operate from designated taxi stands throughout the metropolitan area. The oil-fueled

economic boom of the 1970s and early 1980s, led to substantial increases in private vehicle ownershipwith the motorcar fleet increasing by over 183% in the decade 1978-1987. Since then adversemacro-economic conditions have reduced the affordability of motorcars and the private car fleet hasshrunk and aged as a consequence. Private vehicles now plying the roads of Lagos are typically ten and

more years old and in poor condition.

Sector management: Between the early 1980s and 1994, responsibility for the management of thetransport sector of Lagos State rested with the State Ministry of Works and Transport (LSMWT). This

period witnessed the establishment of the now defunct publicly-owned passenger transport operator, theLagos State Transport Corporation (LSTC), the establishment of the Lagos State Ferry ServicesCorporation (LSFSC), the Lagos State Parking Authority - LSPA- (now defunct) and the CentralLicensing Authority - CLA - (now transformed into the Department for Motor Vehicle Administration in

the LSMT), responsible for the administration of the vehicle licensing system including fee collection.

During this period, transport actions in the State were invariably driven by the expansion of the road

network and by a concomitant focus on capital spending rather than sector planning and the development

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of a holistic approach to resolving urban transport problems. An emerging awareness of-the need forsuch a response led to the splitting in 1994 of LSMWT into the Lagos State Ministry of Works (LSMW)and the Lagos State Ministry of Public Transportation (LSMPT). The latter was given the mandate foroverall sector policy development and planning and was, in 1999, renamed the Lagos State Ministry ofTransport (LSMT). LSMW is mainly responsible for the state road network, but is forced to carry outsubstantial remedial works on federal roads in the state due to lack of federal funding for these works.LSMW oversees the operations of the Public Works Bureau (PWB) which carries out force accountworks. The Lagos Metropolitan Area consists of 18 local government areas (LGA) - out of the twentyone in the state -, with their own elected government. These LGAs have a Works Department and aTraffic Management Unit responsible for road maintenance and traffic management on local governmentroads. Many of the observed shortcomings in the transportation system stem from sector managementweaknesses. These include (i) the absence of an articulated and adopted policy and strategic frameworkfor the transport sector; (ii) fragmentation of institutional responsibilities between various agencies at thethree levels of government with no coordinating framework; and (iii) absence of standard procedures forthe technical and economic evaluation of programs and projects resulting in a strong bias toward capitalexpenditure rather than making better use of existing investments through better management andmaintenance practices.

Cost recovery: Cost recovery in the transport sector in Nigeria and Lagos is particular very low. In2000, actual expenditure for the transport sector in Lagos amounted to Naira 4.4 billion (spent mainly byLSMW for road construction and rehabilitation works). Annual revenues from all internal transportrelated sources were Naira 560 million of which Naira 448 million came from vehicle licenses fees,registration plates and vehicle condition tests. This amounts to a cost recovery ratio of only 13 percent.Studies executed during the preparation of the project have shown that full cost recovery could beachieved in the transport sector in the mid-term and that the transport sector has the potential to become amajor net contributor to state revenue. However, to achieve this, substantial obstacles have to be removedrelated to a lack of an eficient collection systems and irregular adjustments to tarrifs.

Road network density and efficiency: The total road network of Lagos extends to 5180 kilometers ofwhich 591 kilometers (11.4%) are federal roads, 2743 kilometers (53.0%) are state roads, and 1846kilometers (35.6%) are local government roads. Density of this network (about 0.4 kilometers per 1000population) is low even by the standards of other African cities. The operational efficiency of the Lagosroad network is low with a limited number of primary corridors, operating at or near capacity, carryingthe bulk of the traffic. Opportunities to access the primary corridors are limited by a lack of interchangefacilities and, where access is possible, the interchanges are often inadequately designed and provideonly partial access to the primary network. Below the primary network there is a lack of definition of theroad hierarchy with many tertiary roads fulfilling the functions of secondary roads. Very few junctionsare signalized, and manual control of most is restricted to daylight hours. Inadequate attention to drainageissues in the road design process and a poorly developed tertiary and secondary drainage infrastructurecombine to make many roads impassable at times during the rainy season. Use of the road space for otherpurposes is common with the major junctions, interchanges and bus stops hampered in their function bytheir use as unofficial bus stops, and encroachment by street trading and semi-official market activities.

Provision and control of parking is ad-hoc in nature with a consequent mismatch between supply anddemand in spatial and temporal terms. Most vehicles are 'parked' on-street even in important centralbusiness districts such as Lagos Island and Ikeja. On-street parking is virtually free and charges foroff-street spaces are relatively low and often unrelated to the duration of parking. Discounting thosewithin the curtilages of buildings, off-street parking provision is low relative to demand.

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Road safety: This is a major concern with rudimentary (at best) driver training, poor driver behavior,unsafe vehicle conditions, variable road conditions, poor street lighting, the non-provision of pedestrianfacilities, and poor traffic enforcement all combining to produce an accident rate that is probablyamongst the highest in the world.

Public transport provision: (i) buses: bus public transport in Lagos is almost entirely owned andmanaged by the private sector - principally individuals owning one or two second hand vehicles whichthey drive themselves or hire out to drivers on a daily rental basis. There is no major fleet operator, withrecent surveys indicating that few if any operator has more than ten vehicles in their fleet. This is despitesome initiatives by federal and state agencies in the past assisting with the procurement of new buses.Bus public transport operation in Lagos is therefore highly fragmentized with a high level of operationalindiscipline. The existing bus fleet is estimated at 75,000 the majority of which are minibuses (danfos).Comparisons with earlier traffic counts show that danfo numbers have increased significantly in recentyears, whereas molue (medium sized buses) numbers are in decline. This reflects both the relativeavailability and affordability of the two vehicle types, with investors being able to enter the passengertransport market very easily through the purchase of imported second hand minibuses. By contrast,professional transport operators who favor larger buses have not been able to replace their vehicles asthey age; (ii) rail: the National Railway Corporation (NRC) currently operates a limited commuterservice (typically, one train in each direction per day) in the Agege to Iddo corridor. There exists abranch line from this to the port in Apapa, which is hardly used. These rail corridors represent a majorunder utilized asset; (iii) water transport: use of the waterways in Lagos is regulated by the NationalInland Waterways Authority (NIWA), a federal agency. Both the federal and state government provideferry services, the latter through the LSFSC and have built a number of jetties along the variouswaterways of Lagos. Both rail and water transport currently carry less than one percent of the overalltraffic in Lagos, but have good potential to become much more important.

Non-motorized transport: Infrastructure facilities for non-motorized transport are extremely limitedthroughout the metropolitan area, and they appear to receive little or no maintenance attention. Whereprovided, sidewalks have been taken over either by car parking or street trading activities that forcepedestrians onto the roadway. The primary roads do have a limited number of pedestrian over-bridges,but too few (or wrongly located) to prevent the temptation of at-grade crossing in many instances.Secondary roads have virtually no protected pedestrian crossing facilities. Ironically, the most significantpedestrian route in the metropolitan area is the existing rail corridor.

Environmental and social aspects: Little is known on the level of pollution from urban transport inNigeria and its impact. There are however three principal environmental concerns: vehicle emissions, thedisposal of waste sump oil, and traffic noise. A 1991 Bank report identified the inappropriate disposal ofwaste sump oils into surface waters as the most important threat to the physical environment. Noiselevels in major traffic corridors in urban areas in Nigeria are well above international standards forresidential areas, measured at between 70 and 85 dB(A) in 1992. The urban poor in Lagos arecharacetrized by being self-emplored in the service sector (particularly street trading), unskilled workersemployed (often irregularly) in manufacturing, construction and services sector, recent immigrants,skilled workers with relatively obsolete skills not in high demand and the aged and disabled. Surveyscarried out in the course of preparation of this project show that expenditure on transport by householdsis only second to expenditure on food and is about 20% of the household budget. Other surveys alsoreveal that two key factors influencing the residential location of the poor are 'closeness to work' and'good transport availability'. The poor in Lagos therefore have a high level of vulnerability which isgreatly impacted upon by the situation of the transport sector.

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Government Strategy

In response to these issues, LSG has defined a transport sector strategy with the overall objective toimprove the provision of transport services in the Lagos metropolitan area in particular for the publictransport users and the poor. The strategy rests on the following six pillars: (i) creation of organizationaland institutional capacity for the planning and management of the State's transport system; (ii) raising ofthe level of cost recovery in the transport sector; (iii) promotion of affordable public transport services;(iv) reduction of adverse external impacts of transport through the provision of safeguards; (v) creationof a conducive environment for the private sector provision of transport services; and (vi) making thebest use of the existing transport capacity. The letter of sector policy, addressing these issues is attachedto this document in Annex 11.

3. Sector issues to be addressed by the project and strategic choices.

The govermment's transport sector strategy will require long-term focused commitment andimplementation in clearly structured and prioritized phases. LUTP is supporting the first phase of theimplementation of the Government's transport sector strategy, focusing on the following issues:

(a) Issue: Lack of institutional capacity for sector management. A significant contributory factor to thepoor level of urban transport services is the lack of planning and management capacity, and poorcoordination and fragmentation of responsibilities arnong all three levels of government.

Strategy: Establish a single agency with responsibility for sector planning and coordination andre-allocate agency responsibilities. The LSG has set up a corporate body with independent boardresponsible for formulation, coordination and implementation of urban transport policies and programs inthe Lagos metropolitan area. This agency, called the Lagos Metropolitan Area Transport Authority(LAMATA), created by a corresponding bill that was signed into law on January 13, 2002, has theoverall responsibility for transport planning and coordination in the Lagos metropolitan area with theprimary mandate to play a lead role in carrying out transport planning for the metropolitan area and assistin transport policy formulation and coordination of major operational and investment decisions and theirimplementation. LAMATA is expected to provide an overall vision and a strategic planning basis toaddress long neglected transport needs of the metropolis and coordinate activities of the differentexecuting agencies to provide a conmmon and consistent basis for implementation. The emerging divisionof responsibilities in the transport sector is as shown below:

Agency Area of primary responsibilityFederal * Development and implementation of national transport policiesGovernment * National road traffic legislation and vehicle regulationsand its * National environmental standards for transport vehicles and fuelsAgencies * Guidance on best practice in urban transport strategies and sector

managementLagos State * Establishment and definition of the transport sector policy and the regulatoryGovernment frameworkand its * Lagos State road traffic ordinances and vehicle construction and useMinistries regulations

* Construction of new, and upgrading of existing, roads in Lagos State* Supervision of the activities of the State Parastatals in the sector

LAMATA * Co-ordination of the transport policies, programs and actions of all transport

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related agencies in Lagos State* Maintenance and management of the declared road network of about 632

kilometers.* Planning and development of traffic systems management schemes to raise

road network efficiency* Planning and coordination of the supply of adequate and effective public

transport within metropolitan Lagos* Development of the infrastructure for public transport operations in Lagos

State, including public transport priority and passenger interchanges* Collection of all transport user charges as authorized by LSG for the

establishment of a Transport Fund, and their disbursement* Co-ordination of all activities of the State Licensing Authority and all

vehicle inspection units or sections, including data gathering* Technical assistance to LSG and Lagos Local Governments on all matters

relating to the transport sector in the StateLagos Local * Through Traffic Management Units, implementation of the policies of LagosGovernments State Government as required by LAMATA

* Retain responsibility for vehicle parking, motor parks and passengerinterchanges, and other transport-related aspects in accordance with theNigerian Constitution.

Private Sector * All road transport operations, both passenger and freight* Rail mass-transit operations, under contract or concession* Road construction and maintenance activities, under contract

LAMATA will be responsible for executing the proposed project. LAMATA will develop a phased planfor assuming its responsibilities, some immediately such as implementation of the LUTP and somegradually such as motor vehicle administration after diagnostic studies to determine the optimalapproach. Studies will also be undertaken under the LUTP of existing transport sector agencies such asLSMT and LSMW to enhance their capacity to discharge their functions and to identify needed reforms.

(b) Issue: Low cost recovery. Cost recovery in the transport sector of Lagos is low primarily due to (i)low user charges; (ii) inefficient collection systems; (iii) poor management and technical capacitieswhich result in inadequate use of policy and regulatory instruments which create the needed environmentfor use of different cost recovery mechanisms.

Strategy: LSG guided by LAMATA will explore ways to increase user charges so as to significantlyincrease cost recovery level during the project period. One of the key problems with this is that only asmall portion of user charges are in the exclusive control of the state. Many of these charges are theprerogative of the Federal Government (e.g. imposition of a fuel levy), others need joint decisions by thestates at the Joint Tax Board (e.g. increases in vehicle licence fees). During project preparation astrategy has been developed on the approach to be adopted by LSG and LAMATA to increase usercharges which are under state control and for actions to influence user charges related decisions at thefederal level and at the Joint Tax Board. Emphasis will be placed on those charges which reflect costscaused, whose collection costs are low and which have no adverse impact on the poor. Mechanisms willbe developed for the direct transfer of these additional charges into the Transport Fund managed byLAMATA.

(c) Issue: Limited capacity of urban road infrastructure. Despite the existence of an impressive urban

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expressway system in Lagos, efficiency of the road network is low due to: (i) lack of maintenance - and

particularly lack of maintenance of the drainage system causing flooding of parts of the road network

during rains - and consequential relatively poor condition of the road network; (ii) inadequate use of

Traffic Systems Management (TSM) measures; (iii) lack of bus-stop facilities and resulting traffic

blockage due to bus loading and off-loading on-street (iv) inadequate enforcement of traffic regulations;

(v) frequent brake-downs of vehicles due to their poor condition; (vi) an inadequate secondary road

network; (vii) encroachments into the road space by traders; and (viii) poor awareness of traffic laws and

regulations.

Strategy: Approaches to enhancing the capacity of the urban road infrastructure will include: (i)

improvement of the condition of the main road network through maintenance and rehabilitationmeasures; (ii) introduction of TSM measures, such as junction improvements, control of parking,

one-way systems, lane markings, etc, with a view to give advantage to public transport providers; (iii)

provision of bus-stop facilities; (iv) strengthening of the traffic police; (v) remedial works and planned

maintenance for prority local government roads; (vi) improvement of vehicle condition through gradually

tightened vehicle condition control; (vii) the Transport Master Plan (TMP) to be developed under theLUTP will address the need for an improved secondary road network although in this project no funding

for such roads is provided; (viii) encouraging street traders to withdraw from road space andimplementation of resulting resettlement action in line with the resettlement policy framework (RPF)

prepared for the project..

(d) Issue: Poor quality ofpublic transport. Public transport accounts for more than 80% of passenger

travel and its dominant role is expected to continue in future. However, its provision suffers from (i) lack

of appropriate regulatory framework leading to a fragmentized, unorganized provision of services which

contributes to traffic congestion and an adverse image for bus operators; (ii) inadequate infrastructureincluding road network and interchange.facilities which significantly reduce route productivity and thus

profitability; and (iii) insufficient financial capacity of the private operators to renew their fleet arising

from a combination of rapidly increasing costs of vehicles and spare parts due to inflation and adverse

foreign exchange movements, high cost and unavailability of credit, and bus fares that have rapidly

declined in real terms. These unfavorable operating conditions have resulted in an aging fleet that is

unsafe, polluting and provides a low level of service. Other public transport modes such as water and rail

are under utilized restricting the development of an integrated transport system. An existing rail corridor,well located, has the potential to serve a major transportation demand axis; however rail services,provided by the NRC are almost nonexistent due to the endemic management problems of the NRC over

the last two decades.

Strategy: Given the high level of existing and projected public transport use, high priority will be

attached to improving the quality and efficiency of bus services. The regulatory framework for bus

operations will be strengthened to establish a franchising system over a core network of bus routes in the

metropolitan area, including (a) formation of private operators associations on a route basis, (b) setting

up of a transparent competitive mechanism for the allocation of franchises, and (c) establishment of

incentives mechanisms to improve the quality of the bus services and of the bus fleet. Scope for

improvements to the operaving environment of bus transportation such as route rationalization, provision

of exclusive bus lanes, and busways on some corridors will be investigated. Interventions are also

proposed for promoting the use of water transport through improvements to the existing support

infrastructure and by encouraging the private sector to provide services. Detailed feasibility of the

proposed rail based mass transit will be undertaken to provide the basis for a concession arrangement

with a private sector operator. Special effort will also be made to secure modal integration to improve the

serviceability of the transport system, especially for the poor, by promoting the use of water transport and

non-motorized transport means including increasing and making safer pedestrian movements.

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(e) Issue: Adverse environmental and social impacts of transport. Available information onenvironmental impact suggests three principal concerns: vehicle emissions, improper disposal of wasteoil and traffic noise. Low quality of vehicle maintenance, vehicle age (especially the diesel fleet),absence of regular vehicle testing and non-availability of lead free petrol all contribute to a poor urbanenvironment. Noise levels along major traffic corridors are well above intemational standards. On thesocial side, the poor are presently disadvantaged by having to either walk to their destinations or use anexpensive, unsafe and unreliable public transport system: surveys carried out indicate they spend morethan 20% of their income on transport fares, a-figure high by international standard. Measures to improveroad network efficiency are also likely to lead to the displacement of those, predominantly the poor,using existing road space for trading and related purposes. Available road accident statistics indicate thatduring 1980-88, Nigeria had an exceptionally high road accident fatality rate (about 33 fatalities per 100million vehicle-km). Whilst accurate statistics on road accidents in Lagos state are not available, what isavailable supports the view that it is a major problem. Variable road conditions, poor street lighting, thenone provision of pedestrian facilities, and inadequate traffic control all combine to produce a trafficenvironment that is unsafe, especially for pedestrians. Because of this environment, the use ofnon-motorized means of transport such as bicycles is quite uncommon, denying the poor of a relativelycheap alternative means of transport.

Strategy: During project implementation, strategies would be developed to: (a) collect local data on leveland sources of ambient air pollution; (b) disseminate basic knowledge on environmental impacts oftransport modes; (c) develop education campaigns on efficient vehicle operation and maintenance; and(d) introduce enhanced vehicle condition control systems. More importantly, measures will be taken todevelop the institutional capacity for addressing environmental and social dimensions of planned actions.A socioeconomic baseline study will be carried out to establish indicators of social and poverty impactsof the LUTP and thus to ensure that these impacts are positive in nature as a whole on the poor.Furthermore, actions proposed under the project, particularly TSM measures would contribute toreducing road accident rates and would focus particularly on pedestrian safety. Improvements in busoperations would also contribute to improved road safety. As part of implementation, technical assistancewill be provided to develop a multi-sectoral approach including programs for driver training and testing,education, publicity aimed at selected groups of road users, vehicle road worthiness testing, communityparticipation, monitoring and research. A framework by which traffic law enforcement will be improvedis also to be developed and implemented.

(f) Issue: Inability of transport system to cope with future growth. The population of Lagos metropolis isexpected to double in the next fifteen years. Over the past decade, transport demand has grown at a fasterpace than the population growth. In the long run, a city of more than 20 million will require some form ofRail-Based Mass Transit (RBMT) system and unless immediate steps are taken to assess financial,institutional and other issues, including preserving the right of way for the proposed system, availableopportunities for establishing such a system cost effectively may be missed, the metropolis will lose itscompetitiveness and the quality of life would further deteriorate. This requires developing acomprehensive approach to addressing mobility needs which are consistent with urban growth patterns.

Strategy. As part of project preparation, a careful examination of alternative technological, operational,financial and economic options of a mass transport solution have been conducted. This strongly supportsthe development of a RBMT along the north-south corridor within the existing right of way of the NRCas a first phase. It also suggest the need for subsequent extension of this RBMT north and south and eastand west to create a RBMT network. Such major investments need to be underpinned by a strategic studywhich examines the nature of the growing transport needs of the metropolis and addresses key issuesrelated to: (i) relationship of RBMT policy to urban structure and land use policy; (ii) choice of

- 1 0 -

appropriate technology; (iii) integration of RBMT with other modes such as buses and within broader

transport sector policy; (iv) ownership and financing arrangements of RBMT; (v) impact of RBMT on

state/city finances; (vi) contribution to economic viability of the metropolis from which the poor also

benefit; (vii) financial impact of RBMT on maintaining desired level of basic services to the poor,

including an analysis of the impact of the break even fares on the poor and their willingness to pay; (viii)

develop an integrated land use, urban transport and air quality strategy to ensure that RBMT system is

adequately phased to serve the needs of the urban structure; and (ix) inter-modal integration issues

including transport links to the air and sea ports. The Lagos Transport Master Plan (TMP) planned to be

prepared under the project will examine these issues amongst others and be coordinated as appropriate

with other on-going and planned initiatives of LSG to establish a long term development strategy for the

state. Implementation of the TMP will lead to good integration of land use and transport planning.

(g) Issue: Inadequate involvement of stakeholders. There is little history of the involvement of users and

civil society in the development process in Lagos state as elsewhere in Nigeria and this contributes to

relatively low level of accountability and transparency in public decision making. Public sense of

ownership of public investments is low leading to their abuse.

Strategy. Design of the institutional structures of LAMATA contains measures to ensure accountabilityand transparency in decision making with the organization and its officials given due mandates to

discharge their functions according to laid down procedures. Methods and procedures will provide for

due consultations with and participation of users and civil society in the affairs of LAMATA. As part of

project preparation, an Information, Education and Communication (IEC) strategy is being developed to

determine actions to be undertaken to ensure that users and civil society are fully informed on the LUTP

and measures in place within LAMATA for their participation in decisions on proposed actions. The

IEC strategy will be used as one of the tools to ensure that proposed interventions under the LUTP have

consensus.

C. Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost

breakdown):

General: The project supports the transport sector policy and strategy of Lagos State Government(LSG). The implementation of the policy and strategy will be done in several phases and will require aperiod of at least a decade or two. The support to the implementation of phase one of the strategy is the

Lagos Urban Transport Project (LUTP). LUTP focuses on capacity building, on maintenance and

rehabilitation of the main road network, on the application of traffic systems management (TSM)measures (such as parking control, establishment of bus lanes, one-way street systems, etc.) in eleven

local government areas (LGA) including the key ones of Lagos Island and Ikeja, and on establishing a

regulatory framework for public transport operations including water transport services. It also financesthe necessary studies for the preparation of the next phase of the implementation of the government's

policy and strategy.

Capacity building; This component focuses on institutional capacity building through the establishment

of an adequate policy, regulatory and institutional framework for the management and financing of the

transport system of metropolitan Lagos. It includes the following elements: (a) institutionalstrengthening to bring into operational effectiveness the Lagos Metropolitan Area Transport Authority

(LAMATA) including establishment of units responsible for procurement, financial management and

safeguards, creation of a dedicated Transport Fund from sector based user charges for use by LAMATA

to finance its operating costs and to discharge its key responsibilities, as well as the construction of an

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office building for LAMATA; (b) strengthening the capacity of existing transport sector agencies, inparticular the Lagos State Ministry of Transportation (LSMT), the Lagos State Ministry of Works(LSMW), the Lagos State Ministry for Women Affairs and Poverty Alleviation (LSMWAPA), theNigeria Police Traffic Unit (NPTU) and the establishment of Traffic Management Units (TMU) in keyLGAs; and (c) the operating cost of LAMATA including external audits and the carrying out of otheractivities consistent with the sector policy and strategy.

Road network efficiency improvement: This component is designed to enhance the efficiency of theexisting road space, to reduce vehicle operating cost and to improve road safety, in particular pedestriansafety. It comprises of (a) maintenance and rehabilitation measures on a priority 400 kilometers of the632 kilometers of the main road network (including bridges) in Lagos Metropolitan Area that serves asthe backbone of the bus system; (b) rehabilitation and improvement of major junctions on the abovenetwork using low cost TSM measures; (c) preparation and implementation of TSM measures to improvetraffic flow in Lagos Island and Ikeja.

Bus services enhancement: This component will focus on the technical assistance to LAMATA for (a)the establishment of an effective regulatory framework for bus services provision by the private sector,and the adaptation of this framework to the other modes of public transport (rail mass transit and watertransport); and b) the preparation of a pilot demonstration project for the provision and the financing bythe private sector of improved bus services.

Water transport promotion: This component contributes to improving modal diversity within anintegrated urban transport system by promoting the enhanced provision and use of water transport. Itincludes (a) development and implementation of a detailed strategic plan for improving the use of thewaterways of Metropolitan Lagos for transport services, including establishing an appropriate regulatoryframework; (b) privatization of the Lagos State Ferry Services Corporation and or disposal of existingstate owned ferries; (c) encouragement of private sector participation in the provision of water transportservices; and (d) rehabilitation and judicious addition to existing terminal facilities.

Preparation offollow-on phases: This component includes (a) the participatory preparation of aTransport Master Plan for metropolitan Lagos; (b) the participatory preparation of an institutional reformplan for the transport sector, in particular on reform of the Motor Vehicle Administration (MVA) system;(c) the preparation of a strategy for the enhanced use of intermediate means of transport (IMT) inmetropolitan Lagos; and (d) all the necessary studies and preparatory activities for the next phase of theimplementation of the policy and strategy, including the preparation of resettlement plans for theimplementation of rail mass transit in the Agege to Iddo corridor.

Component 'c ,Oo Bank' r;'Costis 2 /.%' 1.: (US$M)t : Total > (US$M) linancing-

1. Capacity building 27.59 20.4 13.32 13.32. Road network efficiency improvement 98.53 73.0 78.91 78.93. Bus services enhancement 0.73 0.5 0.66 0.74. Water transport promotion 2.90 2.1 2.39 2.45. Preparation of follow-on phases 5.25 3.9 4.73 4.7

Total Project Costs 135.00 100.0 100.01 100.0Total Financing Required 135.00 100.0 100.01 100.0

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2. Key policy and institutional reforms supported by the project:

The key policy and institutional reform supported by the project is the creation of LAMATA and the

associated Transport Fund (TF). The bill for the creation of LAMATA and the TF was signed into law

on January 13, 2002. LAMATA is a semi-autonomous body that should function like a private sector

entity with about thirty one competitively selected high level staff. 'The management of LAMATA is

responsible to a Board comprising of transport user representatives. LAMATA is responsible for the

oversight of the transport sector and for the maintenance of the "declared" road network (this nLtwork

consist of the main roads that represent the main public transport arteries and is of total length 632

kilometers but the initially "declared" network will comprise only about 400 kilometers with the rest

added as the TF is built up). If successful, it is envisaged that eventually the maintenance of all roads in

metropolitan Lagos could be delegated to LAMATA by their various owners, a model that is applied in

many federally organized countries and that might be replicated in other states in Nigeria (there the

equivalent to LAMATA could be a "Highway Authority"). The TF represents a user financingmechanism, which should help to increase the very low level of cost recovery in the transport sector and

which should also contribute to fiscal decentralization and to strengthening the financial autonomy of

states. It is hoped that the model of such user financing could be replicated in other states, where the

similar instrument would likely be called a Road Fund.

Reforms to be supported under the LUTP also include the establishment of a regulatory framework for

the delivery of public transport services. This will be done by the detailing of a strategy and plan for the

gradual introduction of route licensing, of a limited-competition regime that would create an orderly

market, and would provide protection from wasteful competition to investors, improve the profitability

of bus operations and thus facilitate the refleeting of the bus system and adoption of improved operating

practices. Parallel reforms will also take place in the approach to traffic enforcement with proposals to

streamline the existing fragmented and ad hoc institutional arrangements, taking due regard of (i)

constitutional allocation of responsibility in this area; (ii) the need for accountability and transparency in

the way the function is discharged; and (iii) the adoption of more modem approaches in which traffic

enforcement is seen as an instrument of transport policy. The traffic enforcement framework developed

during project preparation positions the Nigeria Police Traffic Unit in Lagos State at the center of traffic

enforcement but with its activities subject to review and agreement with LAMATA. The project will also

support reforms to adopt the participatory development of policies, plans and programs through (i) the

incorporation of these approaches in the methods and procedures of LAMATA; and (ii) the participatoryconduct of the Transport Master Plan and, from its outcome, participatory formulation of acomprehensive transport sector policy. These are expected to lead to a greater sense of ownership of

transport actions by users and civil society. Through its method and procedures, LAMATA will

contribute to more rational allocation of resources and institutionalized consideration of environmental

and social issues including the consideration of the poverty impact of proposed actions.

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3. Benefits and target population:

The project would benefit all transport users in Lagos Metropolitan Area, a population estimated at leastat 12.8 million. In particular, the users of public transport services, in general the poorer part of thepopulation (estimated at 9.6 million), will profit from the project. It is estimated that the poor currentlyuse up to 20% of their income on public transport services. It is expected that their expenditure ontransport will decrease during the project period, as a portion of their overall income. Also, time spent ontransport by poor household should decline and satisfaction with the public transport system increase.Furthermore, the project will have an important impact on road safety. Worst affected by the currenttraffic situation are pedestrians, the majority of whom are poor. As well, the project is expected to create500,000 to 700,000 workdays each year leading to an income generating opportunity for the urban poorof an estimated US$3 million equivalent. To verify these expected outcomes baseline socioeconomicsurveys will be conducted (before the end of 2002) and these will be followed with similar surveysduring execution of the project.

4. Institutional and implementation arrangements:

The project will be implemented by LAMATA. The LAMATA bill was signed into law on January 13,2002. LAMATA will be governed by a Board of thirteen members. Of these, seven are private transportsector representatives and six are from the government. As per the enabling law the role of LAMATA isto (a) coordinate the transport policies, programs and actions of all transport related agencies in LagosState; (b) ensure the physical traffic serviceability of declared roads; (c) undertake traffic managementactivities towards ensuring efficient and effective movement of traffic in metropolitan Lagos; (d)recommend on route planning and general location of bus shelters, pedestrian ways and bridges; and (e)coordinate the activities of the State Licensing Authority and all vehicle inspection units of the State. Itwill also implement the LUTP. LAMATA is planned to employ about 31 professional staff who will becompetitively selected and remunerated as per an equivalent private sector entity. The annual operationalbudget should not exceed US$ 2 million equivalent, or 6% of LAMATA's total expenditure. Theorganizational set up of LAMATA is shown in the figure below:

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Maagn Spca Asisan

Environmental & orprorate & Legal

Social Safeguards (2) Secretary(l)

External Relations (l) P {

Intemal Audit (1) Rs{c

IT (l)

Finance (4) Planning (4) Public Transport (4) Roads (3) Traff.c (4)

- accounting - programs & monitoring -route licenses - planning signalization

-budget - reporting - franchising - prograniming - TSM

-data collcction - fares - enforcement- road safety

* The numbers in brackets above indicate the number of high level staff per unit

LAMATA consists of four departments with 3 to 4 high level staff dealing with the key issues for which

LAMATA is responsible: (Transport) Planning, Public Transport, (declared) Roads, Traffic

(Management) and Finance. There will be seven units that report directly to the Managing Director: a

Safeguards, External Relations, Internal Audit, Information Technology, Corporate & Legal Secretary,

Procurement, and Human Resources Units. The Managing Director will have a Special Assistant who

will assist with the running and coordination of the MD's office.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

APL vs SIL: The implementation of the transport sector policy and strategy of LSG will require long

term support over several phases. Therefore, it has been considered to conceive the project as an APL. In

view of the unsatisfactory macro-economic performnance of Nigeria however the long-term favorable

engagement climate required for an APL is not existing, and it was decided that the project would be a

SIL.

Support to private bus operators: Bus services in Lagos are provided principally by one or two vehicle

owning operators using mainly second hand minibuses of low quality. Available information suggests

that few if any operator have a fleet size greater than ten. As a result, bus transport operators in Lagos

are characterized by their lack of the collateral required to securitize any finance needed for fleet

acquisition, and an inability to provide a credible business plan. Financial institutions respond to this

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situation by securing any requested loan against the value of the vehicle, and charging an interest-ratepremium in recognition of the risk being taken. Both of these responses increase the likelihood of theoperator failing to service the loan, though the impact of the former is less obvious than the latter. Toaddress the obvious need for renewal of the bus fleet operating in Lagos Metropolis, consideration wasgiven to limnited financial support for bus renewal aimed at demonstrating the financial viability of busoperation and to test the ability of the private sector, with limited financial assistance, to purchase,operate and maintain a bus fleet and thus demonstrate the financial viability of bus operation in Lagos.This was rejected in favor of the introduction of regulatory reforms to reduce wasteful competition onthe route, provide a framework that rewards effective and efficient bus services provision and promotesthe use of more modem vehicles. The gradual introduction of this framework coupled with plannedimprovements to the road network are expected to yield productivity improvements which may besufficient to induce increased private sector involvement in the enhanced provision of bus services.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).No Bank transport sector operation is currently on-going in Nigeria. Three roadsector operations were completed between 1997 and 1999. A port sector restructuring project is underpreparation. No other donor is active in the transport sector in Nigeria.

l l l Latest SupervisionSector Issue Project (PSR) Ratings

(Bank-financed'projects only)Implementation Development

Bank-financed Progress (IP) Objective (DO)Maintenance backlog on federal roads Highway Sector Loan (closed U U

June 97, loan amount disbursedUS$181.7m)

Maintenance backlog on state roads First Multi-State Roads Project S S(Kano) (closed June 98, credit amount

disbursed US$37.8m)Maintenance backlog on state roads Second Multi-State Roads S S(Oyo and Osun) Project (closed December 99,

credit amount disbursedUS$84.5m)

Inadequate rural transport Rural Transport Project (aFY05 project, planned creditamountUS$ lOOm)

Port sector inefficiency Port Modemization Project (aFY06 project, planned creditamountUS$75m)

Other development agencies1P/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

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3. Lessons learned and reflected in the project design:

The Bank's past involvement in Nigeria's transport sector has totaled thirteen projects at a total cost of

US$592 million, of which US$477 million (81%) was allocated to the road sub-sector. The last three

projects included a Highway Sector Loan, which was closed in 1997, and two Multi-State Roads

Projects, closed in 1998 and 1999, respectively. Assistance to railways was provided in 1958 (Loan

193-UNI, US$28 million) and in 1970 as part of a Transport Rehabilitation Project (Loan 694-UNI,

US$25 million, 1978). There were two port projects (Loan 326-UNI, US$13.5 million, 1963 and Loan

922-UNI, US$55 million, 1978). The Transport Parastatals Project (TPP) approved in June 1986 (Loan

2734-UNI, US$20.9 million) supported the Govemment's effort to improve the policy environment and

the performance of parastatals, especially Nigerian Railway Corporation (NRC) and Nigerian Ports

Authority (NPA). Past operations in the transport sector, as in other sectors, have been marked by the

relative failure of institutional development components as compared to the relative success of the

physical investments. They have also suffered from substantial delays in procurement related ma t.ters due

to political instability and external interference in project matters.

Following are the lessons learnt from past experience in the transport sector: (a) Nigeria is blessed with a

strong private sector, including numerous experienced highly capable road contractors and engineering

consultants. Through the strict application of the Bank's procurement procedures, good quality works and

services can be achieved at moderate cost; (b) capacity building within the civil service structure has

proven to be unsustainable, due to the prevalent disincentives (low salaries, bureaucratic procedures,

political interference, etc.); and (c) the current set up for the management and financing of roads is not

viable: there are too many agencies (about 800 in total in Nigeria) and almost no funding is available for

maintenance. These issues have been addressed in the design of LUTP, as follows: (a) a

semi-autonomous agency (LAMATA) is being created with private-sector-like operations and

remuneration, with strong procurement, financial management and safeguard capacity, which will be

responsible for the execution of the project; (b) LAMATA will set up a strong procurement unit and will

procure all contracts (including those financed by the Transport Fund) under the procurement rules

described in the DCA; and (c) the maintenance of the "declared" road network in Lagos Metropolitan

Area (632 km) is being delegated by the various owners to LAMATA (if successful, eventually the

maintenance of all roads could be delegated to LAMATA). This is an arrangement which is being

successfully applied in most federally organized countries (e.g. the USA), and it is hoped that by good

example this approach could eventually spread to all other states in Nigeria. Furthermore, a user-financed

transport fund is being created and controlled by LAMATA, which will finance, in first priority, the

maintenance of the road network.

4. Indications of borrower commitment and ownership:

LSG has formulated a long term transport sector policy and strategy (see Annex 11) in a participatory

process which commenced at least a decade ago. This policy and strategy demonstrates the poverty focus

of the LSG and its commitment to reform the sector. LSG has signed into law on January 13, 2002 the

bill to create LAMATA and the Transport Fund. In the budget of 2002 an allocation of Naira 500

million has been made to support implementation of the policy and strategy. To expedite project

preparation, LSG has set up the Lagos Urban Transport Project Office (LUTPO) which is overseen by a

Project Inplementation Committee comprising of the Commissioners for Transport, Works, Finance,

Women Affairs and Poverty Alleviation, and Budget and Planning, with the latter the chairman.

5. Value added of Bank support in this project:

The value added by the Bank comes through its experience in a large number of urban transport projects

throughout the world. The Urban Transport Thematic Group of the World Bank has just finalized an

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urban strategy review, which confirms the Bank's comparative advantage in urban transport matters, therelevance of urban transport in view of the rapid urbanization of the world's population, and whichsharpens the poverty focus of our approach. Lagos being the largest city in Africa, growing at a speedthat might make it the world' largest city within the next 50 years, and beset with a huge poverty problem,can hardly be ignored. Much of the policy thrust of the LSG, fiscal decentralization, increased role of theprivate sector, public sector restructuring, community participation, etc. are areas where the Bank canassist and guide.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):* Cost benefit NPV=US$ 148.1 million; ERR = 55.7 % (see Annex 4)

o Cost effectivenesso Other (specify)The economic analysis was undertaken separately for each of the project components. It focused on thedetermination of the project cost and benefits and altemative evaluations based on several economicindicators.

(a) Capacity building: no economic analysis was undertaken for this component as it has no 'physical'elements. However, LAMATA's effective discharge of its flnctions, enhancement of the capacity ofexisting transport sector institutions are all crucial to the effective implementation of the investmentcomponents of the project.

(b) Road network efficiency improvement: This component requires the largest investment in LUTP. Theeconomic analysis was completed for about 567 km of roads (excluding bridges). The analysis wascarried out for 5 years period with 2002 as the base year and discount rate of 12%. The total cost ofUS$ 102.80 million was estimated for the implementation of road and junction improvement programover the five-year period. The quantification of road user benefits was made to evaluate the impact onuser costs if the project were executed. Benefits included reduction in vehicle operating cost, timesavings and improved traffic safety. A total of USS250.939 million were expected to result in savingsfrom road user costs over the analysis period. HDM program was used to calculate Economic Rate ofReturn (ERR) and Net Present Value (NPV) for each of the proposed road works. NPV of road andjunction improvement program was estimated to be US$148.1 million with aggregate ERR of 55.7%. Theselection of individual road projects for the first year program was based on the options producing higherNPV and ERR being above the minimum attractive rate of return. First year program was prepared for100.77 km of roads which would result in US$95.44 million of user benefits. The results of sensitivityanalysis showed that, even in the worst scenarios assumed, the road network improvement project wouldstill be viable and justified from economic point of view producing significant benefits and givingeconomic rate of return much greater than the minimum attractive rate of return.

(c) Bus services enhancement: no economic analysis was undertaken as it has no 'physical' elements.

(d) Water transport promotion: No economic analysis was undertaken for this component principallybecause its 'physical' eiements contain interventions that are relatively small scale in nature with highimpact on productivity of services.

(e) Preparation offollow-on phase: an economic analysis was undertaken for the rail mass transitsub-component to justify the preparatory activities to be financed under the LUTP for the implementationof rail mass transit in a possible follow-on project. The present analysis carried out was based on an

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update of previous feasibility study carried out from 1992-1994 under the "Mass Transit and TransportSystems Management Program for the Lagos Metropolitan Area" and was done in 2001. Total railproject cost was estimated to be US$127.5 million. Financial and economic analysis was carried toestimate variable cost per passenger km. The cost of trains were annualized based on a train life of 30years and a real financial interest rate of 6% and an economic discount rate of 12%. Economic benefitswere estimated for savings in operating costs, savings in time, reduction in road congestion, and benefitsto improvements to the level of service. Overall, the mass transit railway improvement would giveUS$880 million in benefits. The financial analysis showed a real rate of return of 19% on the combinedinvestment in both infrastructure and locomotives and coaches. The basic economic analysis showed avery high rate of return of 72%. This was based on relatively high value of time, high weighted existingbus operating costs and the introduction of "level of service" benefits. The sensitivity analysisdemonstrated that even with demand at 50% of that in the base case, the return on locomotives andcoaches would be above 15%.

2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR = % (see Annex 4)A financial analysis has been undertaken only for the proposed rail mass transit. It shows that the

scheme has a base case FRR of 41.8%. It is based on comparing the cost of constructing and operating

the railway which is taken as commencing initial service in 2007 and in full service (at capacity) by

2010. When subjected to sensitivity analysis with regard to increases in construction cost

(increased by 25%), demand (decreased by 50%), value of time(decreased by 50%), cost of

borrowing 10% instead of the base case 6% and fares at 70% of base case, the FRR is 35.1%,

27.2%, 41.8%, 39.1%, and 28.6% respectively. These results clearly demonstrate the rail mass

transit to be financially viable.

Fiscal Impact:

Total actual revenue of Lagos State (including transfers from the federal government - about 20% oftotal) was Naira 32.2 billion (US$320m equivalent) in 2000. Of this, only Naira 560 million (1.7%) accrued from the transport sector.Total transport sector expenditures in 2000 were Naira 4.4 billion, hence revenue covered only 13% ofsector expenditure. The project will require government and/or users to contribute a minimum of US$ 7million equivalent each year of its duration. In the first year, this is expected to be mainly from budgetaryallocation. In subsequent years however, the amount is expected to come increasingly from user charges

paid directly into the Transport Fund. The target is that the US$ 7 million will be fully paid from usercharges by the fifth year of the project. A cost recovery strategy to facilitate achievement of thisobjective has been agreed with the LSG and will be further detailed during project implementation.Effectively implemented, this should make the transport sector cover all its cost in the mid-term and itcould become a major revenue earner for the state in the long term. The medium to long term impact ofthe project on the state's revenue is therefore expected to be positive with the transport sector eventuallyproviding a surplus to the state's revenue.

3. Technical:

Works executed under this project would be low-cost, high impact measures, and would include routinemaintenance, such as road surface and drainage cleaning, recurrent maintenance, such as crack sealing,pot hole filling, repair of traffic lights and street lighting, repainting of lane markings, curbs and trafficsigns, and periodic maintenance, such as placing of overlays and bridge repair. Measures would alsoinclude traffic systems management (TSM) measures, such as parking control, establishment of bus lanes

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(on existing lanes), establishment of one-way systems, construction of pedestrian crossings, and junctionimprovements through placing of traffic lights and other measures. A first year works program has beenselected which would not trigger resettlement action, by avoiding any location where street traders haveinvaded existing road space. In subsequent annual work programs, based on the Resettlement PolicyFramework (RPF), appropriate resettlement plans will be prepared and executed prior to commencementof any works that may require resettlement. Works would be grouped in appropriate lot sizes for (a) smallscale labor-based contracts (routine maintenance) of an average contract size of US$50,000 equivalent;(b) into medium sized lots for recurrent maintenance activities of an average contract size of US$200,000equivalent and TSM activities of average contract size of US$500,000; and (iii) into large scale lots of anaverage contract size of US$3,000,000 for periodic maintenance and rehabilitation. Most contractswould be of less than one year duration.

In respect of the bus services enhancement and water transport promotion components, appropriateregulatory frameworks would be defined to enhance the quality of bus and ferry services, particularly inrespect of safety and environmental impact.

4. Institutional:The following broad division of responsibilities between the tiers of government (federal/state and localgovernment) and LAMATA underpin the LSG transport sector policy: (i) local government -implementation of local area traffic schemes, maintenance of local roads, parking control, motor parksand markets; (ii) state government - formulation of sector polices and strategies, and sector performancemonitoring; (iii) federal -establishment of national transport policies and facilitation of theirimplementation through enabling legislation and resourcing; (iv) LAMATA - supporting policydevelopment and implementation by LSG and the LGAs, implementation of the LUTP and otherexternally funded transport projects, maintenance of portion of the road network that has been 'declared'as the responsibilities of LAMATA, and regulation and planning for the transport system especiallypublic transport. The scope of the responsibilities for LAMATA requires reforms of some existingagencies such as the LSMT, LSMW, traffic enforcement agencies such as LASTMA, the motor vehicleadministration system, etc. Studies under the LUTP will assist to identify the needed reform measures.

4.1 Executing agencies:

The project will be implemented by LAMATA. The LAMATA bill was signed into law on January 13,2002. LAMATA will be governed by a Board of thirteen members. Of these, seven are private transportsector representatives and six are from the government. LAMATA is planned to employ about thirty oneprofessional staff who will be competitively selected and remunerated as per an equivalent private sectorentity. The annual operational budget should not exceed US$ 2 million equivalent or 6% of LAMATA'stotal expenditure. The chairman of the Board and the Managing Directorfor LAMATA have alreadybeen appointed. Having established financial management, procurement and safeguard units withadequate capacity is a condition of effectiveness.

4.2 Project management:

LAMATA will have overall responsibility for the management of the project. This responsibility will bedischarged based on procedural manuals which are being developed as part of project preparationactivities. These procedures are expected to be in place before effectiveness and LAMATA's staff trainedin their use. Units dealing with financial management, procurement and safeguards will be operational byeffectiveness. It is expected that LAMATA will set up a Corporate Management Team (CMT)comprising the Managing Director, other Directors, the Corporate and Legal Secretary with the head ofthe procurement unit an observer. The CMT will have authority to implement LAMATA's budget onceapproved by its Board subject to an approval limit to be determined as part of the preparation of itsfinancial management procedures. The MD will act as the Project Manager for the LUTP with the day to

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day responsibility for project supervision and monitoring delegated to the Director Planning. The

Director Planning will report to the Managing Director on project related matters and liaise as required

with other LAMATA units and external agencies implementing/benefiting from the project. No project

accounts will be opened outside of those defined under the project.

4.3 Procurement issues:

LAMATA will be responsible for all procurement functions including planning, contract management

and external auditing. LAMATA will form a procurement committee and a procurement unit (PU). The

PU will have three qualified and experienced staff (one Procurement Specialist and two Procurement

Officers), who will be responsible for the day to day management of all procurement functions.

Procurement packaging for civil works, goods and consulting services, wherever possible, will be

structured to support: (a) the development of the local contracting and consulting industry and (b) the use

of labor intensive methods to generate employment. A procurement plan for all project activities will be

prepared and included in the Project Implementation (PIP). The procurement plan will be reviewed and

updated at least one month prior to the start of each project year. To strengthen procurement capacity of

LAMATA, an action plan has been agreed between IDA and LSG (see Annex 6A). All procurement by

LAMATA, either financed from the Transport Fund or from the credit, will be done under the

procurement rules defined in this project.

4.4 Financial management issues:

LAMATA is a new agency which is in the process of being set-up. Consequently, an appropriate

financial management system, including an adequately staffed financial department, an internal audit

unit, a computerized accounting system, procedures manual, and external auditing arrangements need to

be established prior to effectiveness of the credit. Based on the Country Financial Accountability

Assessment (CFAA) for Nigeria, the overall country financial management risk is high. It can also be

reasonably assumed that the financial management risks in Lagos State is also high. The overall project

risk from a financial management perspective is therefore considered high, but could be assessed as being

moderate soon provided: (a) the risk mitigation measures identified below; and (b) the credit

effectiveness conditions outlined in Section G are satisfactorily addressed.

A Finance Department will be established at LAMATA which will be headed by a Director of Finance, a

chartered accountant with vast experience, who will be supported by appropriately qualified accountants.

The Finance Department will have an overall responsibility for day-to-day financial management of the

credit. Specifically, it will be responsible for (a) preparing activity plans, monthly statement of accounts

reconciliation statement, and quarterly Statements of Expenses (SOE) Withdrawal Schedule, quarterly

financial monitoring reports, and annual financial statements; and (b) ensuring that the project financial

management arrangements are acceptable to the Government and IDA. It will also be responsible for

forwarding the reports and statements to the State Ministry of Finance and IDA.

Project activities, records, books of accounts and systems will be reviewed by the Internal Audit Unit.

The Unit will be headed by a relevantly qualified internal auditor who will be supported by appropriately

qualified staff. The Head of Internal Audit will report directly to the Managing Director.

The overall project funding will consist of IDA Credit, Counterpart Funds and user charges accruing to

the Transport Fund. With respect to banking arrangements, IDA will disburse the credit through a

Special Account (SA) opened and operated by LAMATA. IDA will sign a credit agreement with FMF,

and FMF will sign a subsidiary agreement for on-lending credit proceeds with Lagos state.

The following accounts will be maintained by LAMATA: (i) A SA in US Dollars to which the initial

deposit and replenishments from IDA funds will be lodged; (ii) A Current (Draw-down) Account in

Naira to which drawdowns from the SA will be credited once or twice per month in respect of incurred

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eligible expenditures. Following the immediate payments of eligible expenditures, the balance on thisaccount should be zero; (iii) A Current (Project) Account in Naira to which Counterpart Funds will bedeposited; and (iv) A Current (Transport Fund) Account in Naira into which receipts of user charges willbe deposited. Interest income will be deposited to the respective accounts.

Additionally, LAMATA will maintain an IDA Ledger Loan Account (Washington) in USDollars/Naira/SDR to keep track of drawdowns from IDA credit. The account will show (a) depositsmade by IDA, (b) direct payments by IDA, and (c) opening and closing balances.

All bank accounts will be reconciled with bank statements on a monthly basis by the Finance Departmentof LAMATA. A copy of each bank reconciliation statement together with a copy of the relevant bankstatement will be reviewed monthly by the Director of Finance who will expeditiously investigateidentified differences.

By Credit Effectiveness, the project will not be ready for report-based disbursements. Thus, at the initialstage, transaction-based disbursement procedures (i.e. direct payment, reimbursement, and specialcommitments), as described in the World Bank Disbursement Handbook, will be followed. However,when project implementation begins and the borrower requests conversion to report-based disbursements,a review will be undertaken by the Task Team (TT) to determine if the project is eligible.

LAMATA will prepare and submit to IDA Audited Project Financial Statements within six months afteryear end. By Credit Effectiveness, relevantly qualified extemal auditors will be appointed by LAMATAon Terms of Reference (TORs) acceptable to the Bank. The auditors will audit the project accounts andfinancial statements in accordance with International Standards on Auditing (ISAs). The audit reportswill include opinion paragraphs on the Audited Project Financial Statements, and the accuracy andpropriety of expenditures made under the SOE procedures and the extent to which these can be reliedupon as a basis for loan disbursements. Regarding the Special Account, the auditor will also form andexpress an opinion on the degree of compliance with IDA procedures and the balance at the year-end foreach individual special account. The scope of the audit of LAMATA will also include a value formoney statement on LAMATA's technical and institutional practices and performance during theyear under review giving due regard to its corporate objectives, its Corporate and InvestmentPlan and developments in its business environment. The value for money statement will inparticular serve to provide a description of how LAMATA is organized to discharge its mandate,the conduct of its operations (including the Board) and its relationship with and relevance to itsenvironment, identifying strengths and weaknesses and making due recommendations for theirremedy.

5. Environmental: Environmental Category: B (Partial Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

An Environmental Management Framework (EMF) has been prepared outlining the possibleenvironmental and social impacts of the project. The EMF comprises of the following: (i) an EA/SAoverview; (ii) a detailed EA/SA of the road network efficiency enhancement component; (iii) an actionplan for the implementation of the safeguards unit of LAMATA; (iv) a resettlement policy framework(RPF); and (v) TOR for a full sectoral EA/SA to be conducted during project implementation. Theexecutive summary of the EMF is shown in Annex 12 of this document.

5.2 What are the main features of the EMP and are they adequate?

The EMF includes a detailed analysis of the institutional environment in Nigeria in respect of safeguardissues. It also sets out the various cycles of EA/SA as they will evolve: (i) preparation, approval and

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disclosure of the EMF and the resettlement policy framework during project preparation; (ii) executionof a full sectoral EA/SA during the first six months of project implementation; (iii) preparation ofdetailed EMPs and Resettlement Plans (RP) for each individual sub-project that would trigger suchaction, and prior to any award of a works contract related to such a sub-project. The only works with anenvironmental impact during the first year of the project are related to the road network efficiencyenhancement component. The first year work program of this component has been selected (and detaileddesign and tender document are being prepared) in such a way that no resettlement action will berequired. Furthermore, measures envisaged are low-cost with mostly positive environmental impacts. AnEMP for this component has been outlined in the EMF. Contract documents will be prepared whichinclude the necessary environmental requirements (such as for the disposal of waste material). Otherenvironmental actions will be included in the bill of quantities of the tender documents. A specialenvironmental audit will be arranged of the tender documents prior to tendering. During contractexecution, specialized engineering firms will be employed to ensure that contracts are executedaccording to the contractual requirements. Works in subsequent years which trigger resettlement actionwill have RP prepared for them prior to any award of a works contract related to such works.

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: March 21, 2002

5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describemechanisms of consultation that were used and which groups were consulted?

During preparation of the EMF, all the institutional stakeholders have been consulted. Since duringpreparation of the EMF specific works were not yet selected, no consultation with beneficiaries werepossible. However, the EMF and the RPF outlines the participatory process to be applied in futureEA/SA processes. LAMATA, in its Safeguard Unit, will have a social specialist that will foster suchparticipatory processes in conjunction with the External Relations Unit of LAMATA.. The first yearworks program was selected during appraisal in a participatory way with institutional stakeholders,including members of the Board of LAMATA who broadly represent the transport sector stakeholders.As mentioned before, the first year works program only includes measures with very light social andenvironmental impact (such as road surface and road furniture repair).

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

The PIP will include a safeguard manual which will establish indicators to measure the state of theenvironment and the impact of the project on these indicators.

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

During project preparation a Poverty Impact Assessment was executed. The key poverty impacts arerelated to improved bus services, the creation of job opportunities, empowerment through participatoryprocesses and improved road and pedestrian safety. Poverty impacts of the project will be measured bythe following three key indicators: (i) reduction of time spent on personal travel by poor households; (ii)reduction in the proportion of household income spent on transport; and (iii) reduced number ofaccidents with injuries (including those involving pedestrians).

6.2 Participatory Approach: How are key stakeholders participating in the project?

An Information, Education and Communication (IEC) strategy is being formulated in the course of thepreparation of the project. This will be further detailed as part of the preparation of the multi-annual

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Corporate and Investment Plan of LAMATA, an exercise that is planned to be completed by December2002. Apart from the Safeguards Unit which will use participatory approaches in discharging its duties asnecessary, LAMATA will have an External Relations Unit whose function is ensuring that LAMATAhas a fully developed and functional consultative and participatory procedures for involving users andother stakeholders in the work of LAMATA. A framework for the external relations of LAMATA, andfor the involvement of the civil society has been developed during project preparation.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

During project preparation, a number of workshops have been held which have involved a broad sectionof stakeholders and these helped considerably in defining the project and achieving its public acceptance.Existing and prospective bus operators have been closely involved in the definition of the bus servicesenhancement component of the project. During project implementation, stakeholder involvement will beprincipally through the Safeguards and the External Relations Units of LAMATA. The latter has themandate to follow up on issues raised by the public, and chairs an internal users services group whichwill meet regularly to consider matters brought before it or needing to be addressed. Minutes of thisgroup are expected to be forwarded to the Managing Director and the Corporate and Legal Secretary, thelatter being required to forward the minutes to all Board members. In addition, a user forum will becreated by the external relations unit whose activities will again be reported to the Managing Directorand the Board. These provisions will be incorporated into the IEC strategy as tools for ensuring itseffective implementation.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

LAMATA will have a Safeguards Unit with responsibility for oversight of the social impact of activities

within the transport sector. During project preparation, a framework for poverty impact assessment hasbeen developed including identification of indicators to be tracked to assess how LAMATA activities areimpacting on poverty reduction. The framework also includes provision for a poverty audit of plannedactivities of LAMATA through the different stages of the project cycle. The further development andimplementation of the framework is one of the key tasks for the social development specialist in theSafeguards Unit of LAMATA.

6.5 How will the project monitor performance in terms of social development outcomes?

The Safeguards Unit in LAMATA mentioned above will use the poverty assessment frameworkdescribed above and further developed by it to monitor performance of LAMATA with regard to socialdevelopment outcomes of LAMATA's activities. The Unit itself will have performance measures set forit and these will be monitored. A baseline study is being carried out as part of project preparation and thiswill help to set bench marks for the indicators to be used to track social development outcomes ofLAMATA's activities. LAMATA is required to report in its Annual Report, which is to be freelyavailable to the public, on safeguards issues. LAMATA will also hold an Annual General Meeting to

which it is required to invite members of the public.

7. Safeguard Policies:7.1 Do any of the following safeguard policies apply to the project?

Policy . Aplicability . '

Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) * Yes () No

Natural Habitats (OP 4.04, BP 4.04, GP 4.04) (9 Yes * No

Forestry (OP 4.36, GP 4.36) (9 Yes * No

Pest Management (OP 4.09) (9) Yes * No

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Cultural Property (OPN 11.03) 0 Yes * No

Indigenous Peoples (OD 4.20) (9 Yes * No

Involuntary Resettlement (OP/BP 4.12) * Yes U No

Safety of Dams (OP 4.37, BP 4.37) ( Yes * No

Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) (9 Yes * No

Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* () Yes * No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

LAMATA includes a Safeguards Unit staffed with environmental and social specialists. It being in placeand provided with a safeguard manual is a condition of effectiveness. A RPF has been prepared to guidethe future preparation of RAP. TOR for the preparation of sectoral EA/SA has been prepared and theexecution of this study is planned within the first six months of project execution, after which it will be

disclosed after review and approval by the Federal Ministry of Environment (FMOE) and the Bank. Afirst year works program is being prepared which will not include any resettlement action. Future annualwork programs might include some resettlement action (in almost all cases these affect traders that tradeon the existing right of way). They will not be entitled for land compensation, however, they might beentitled to receive compensation for temporary or permanent loss of income. No works program will beexecuted unless the required EMP and RAP will have been prepared and implemented.

F. Sustainability and Risks

1. Sustainability:

The key to the sustainability of this project is LAMATA and the Transport Fund. LSG has passed theLAMATA bill without having an assured external support mechanism (LUTP), a clear signal that it isconvinced that LAMATA is a requirement for the sustainability of the sector reforms envisaged. Thecrucial measurement of the success of the reform is the availability of additional user charges which aredirectly transferredfrom the source into the TF. The increase of such additional user charges directlytransferred to the TF is a key indicator of success of the project.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

The following assumptions made and considered critical for the success in the project logframe (Annex1) are considered as critical risks and specific risk mitigation measures are being planned as per the tablebelow.

Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectiveInsufficient counterpart funding is S Counterpart funding allocation should beavailable treated as "first charge" in the budget of LSG

(to be addressed in the DCA)

Additional road user charges can not be S This risk is judged substantial because the Statecollected due to insufficient support for has limited influence on federal government.this by federal government (fiscal LAMATA will need to maintain a constantdecentralization still has a long way to dialogue with federal agencies that are relevantgo) to state based revenue collection

LAMATA is not efficient and subjected M LAMATA is expected to operate like a privateto political influence sector agency due to its well paid, highly

competent staff. Political influence onLAMATA however needs to be controlled (e.g.

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by having all procurement decision madewithin LAMATA). Elaborate conditionsrelated to LAMATA's capacity need to be metprior to effectiveness (see Chapter G)

Road network efficiency gains are used M Road network efficiency improvements mustup by traffic growth be accompanied by additional TSM measures

such a parking and general access control. TheTransport Master Plan will develop mediumand long term strategies for demandmanagement.

The regulatory reforms do not gain M The basic approach to the proposed regulatorywidespread approval of private sector refoms has already been accepted by

operators. government and key bus operators. Its detailingand implementation will be done participatorilyto ensure this emerging consensus isstrengthened.

Water transport fails to take a significant M IEC campaigns and a good safety record willshare of the overall transport system due mitigate against the aversion of the Lagosiansto cultural bias against water transport towards water transport

No consensus can be found in respect of M A participatory approach will be applied for thethe Transport Master Plan and Transport elaboration of these plans right from theSector Institutional Reform Plans beginning and a series of stakeholder

workshops will be held to ensure buy-in by thestakeholders

Potential private sector operators for the S Co-financing will need to be secured from theurban rail mass transit option are state and donor agencies with regard to the railunwilling to invest into the railway infrastructure.

From Components to OutputsTA to LAMATA is not effective M Clear performance criteria and output targets

will be set for each individual TA

Other transport sector agencies do not M Support and incentives for them to collaboratecollaborate have been built into the projectPrivate sector companies do not perform M Private sector in Nigeria has proven to be able

to deliver. Effective procurement procedureswill weed out those that do not deliver

Insufficient number of private sector S This risk is assessed as substantial because theoperators are interested in taking circumstances in Lagos are considered uniqueadvantage of opportunities provided for and what has worked in other cities might notimproving their operations under the new work in Lagos. However, substantial resourcesregulatory framework. will be devoted to identifying actions that

promote the advantages of the regulatoryframework and of how the private sector cantake advantage of opportunities that it providesfor improving their operation.

Private sector is not interested in S Again, this risk is assessed as substantial andoperating the state owned ferries some of the ferries might have to be sold off as

scrap metal. Given an appropriate regulatory

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framework and appropriate landsideinfrastructure private operators might beinterested to operate more appropriateself-procured ferries

Strategic plan for the promotion of M An IEC campaign on the usefulness of IMT inintermediate means of transport (IMT) is the urban environment will be launched

not relevantProcurement risks S Until all the measures required to be taken

prior to effectiveness are fully operational (seeAnnex 6) procurment risks are condsidered as"substantial"

H Until all the measures required to be takenFinancial management risks prior to effectiveness (see Annex 6) financial

management risks are condsidered as"substantial"

Overall Risk Rating S

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)The overall project risk is judged as substantial. However, in view of the importance of Lagos and inview of the commitment of the State Government it is judged as being worth taking. Adequate resourceswill be required for a intensive supervision of the implementation of the project.

3. Possible Controversial Aspects:

The Federal Ministry of Transport (FMT) plans to revive the National Railway Corporation (NRC). It isnot clear whether the FMT will be willing to cede part of the Agege to Iddo rail corridor needed for theoperation of the rail mass transit scheme.

G. Main Loan Conditions

1. Effectiveness Condition

1. The First Subsidiary Loan Agreement has been executed on behalf of the Borrower and Lagos State.2. The Second Subsidiary Loan Agreement has been executed on behalf of Lagos State and LAMATA.3. The Managing Director of LAMATA assumes duty and at least the procurement, finance, internal

audit and safeguards units of LAMATA are established, the heads of these units and appropriatelyqualified support staff are appointed, initial capacity development has been undertaken, andrespective procedural manuals are produced satisfactory to the Association.

4. LAMATA has established a financial management system acceptable to the Association and hascarried out capacity training.

5. LAMATA has appointed an independent auditor with TOR satisfactory to the Association.6. The Borrower and Lagos State have entered into an agreement, satisfactory to the Association,

whereby Lagos State has agreed to assume responsibility for the management of the federal roads inLagos State included in the declared road network.

7. LAMATA has opened the Project Account and deposited the initial deposit of Naira 375 million.

2. Other [classify according to covenant types used in the Legal Agreements.]

Project Covenants

1. In each year after effectiveness, at least an amount of US$7 million equivalent is contributed to theproject by Lagos State from user charges and/or from the state budget.

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2. The share of the road user charges of total government contribution directly transferred from source

to the Transport Fund is at least 20% (US$1,400,000) at the end of 2003, 40% (US$2,800,000) at the

end of 2004, 60% (US$4,200,000) at the end of 2005, 80% (US$5,600,000) at the end of 2006 and100% (US$7,000,000) at the end of 2007.

3. Except as LAMATA and the Association shall otherwise agree, LAMATA shall maintain for each

fiscal year, starting in 2003, a ratio of total operating expenses to total expenditures less than 0.06.4. Except as LAMATA and the Association shall otherwise agree, LAMATA shall not, starting fiscal

year 2003, incur debt, unless the net revenues of LAMATA for the fiscal year immediately preceding

the date of such incurrence or for a later twelve-months period ended prior to the date of suchoccurrence, whichever is the greater, shall be at least two (2) times the estimated maximum debtservices requirements of LAMATA for any succeeding fiscal year of all debts of LAMATA,including the debt incurred.

5. LAMATA will execute the project in compliance with the Environmental Management Framework

and with the Resettlement Policy Framework prepared for the project.

6. LAMATA shall carry out procurement in accordance with procurement regulations satisfactory to

the Association.7. LAMATA shall carry on its operations under the supervision of qualified and experienced

management assisted by competent staff in adequate numbers.

H. Readiness for Implementation

2 1. a) The engineering design documents for the first year's activities are complete and ready for the

start of project implementation.D 1. b) Not applicable.

Z 2. The procurement documents for the first year's activities are complete and ready for the start of

project implementation.2 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory

quality.C 4. The following items are lacking and are discussed under loan conditions (Section G):

1. Compliance with Bank Policies

1 1. This project complies with all applicable Bank policies.E 2. The following exceptions to Bank policies are recommended for approval. The project complies

with all other applicable Bank policies.

Dieter E. Schelling lessis-Fraissard Mark D. TomlinsonTeam Leader Sector Manager Country Director

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Annex 1: Project Design Summary

NIGERIA: Lagos Urban Transport Project

E >,. ,,<. ,i ,.. . . '49.7,Ky Prfor'ance u,Data CoIIectidh!Strtg ; mt- ,ieryf, 'Indi tn' Critial Assu'nptio -.

,.Ati raft hy 'I didorC _ ___Ives_ __ __ __ _ns__ __ _ __ _

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)Improved governance LAMATA becomes an Local newspaper articles Political influence on

example of good governance LAMATA does not impede itsin Nigeria technical capacity

Conditions for private-sector Private sector is refleeting bus LAMATA Annual Report Private sector has confidenceled, poverty reducing growth fleet, commences to operate in economic and politicalcreated ferries, shows interest in the situation.

operation and financing of railmass transit and road andbridge BOT

Community involvement and Users have a positive view of Local newspaper articles and Information, education andparticipation LAMATA follow up socioeconomic communication strategy of

surveys LAMATA is successfullyimplemented

Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:The capacity to manage the Time and money spent on Ex-post socioeconomic survey Pro-poor economic growthtransport sector in the Lagos personal travel activities by as compared to base-line study occursMetropolitan Area is poor households (relative tosustainably improved and the baseline of 2002) is reducedefficiency of the publictransport network enhanced,such that it contributesmeasurably to povertyreduction

Number of accidents Arinual traffic accident report Traffic accident data are(particularly those involving of LAMATA reliablepedestrians) decreasePerson-days of labor created LAMATA Annual Report Contractors will effectively

apply labor based workmethods

Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:1. Capacity to manage the All internal procedural LAMATA Annual and Technical assistant team totransport system in Lagos manuals of LAMATA Quarterly Reports LAMATA is effectivemetropolitan area enhanced established and LAMATA

fully functional by end 2003Total financial contribution by LAMATA Annual and LSG is supportive of theLSG through budget or user Quarterly Reports project and treat itscharges exceeds US$7m each counterpart obligation as "firstyear charge"in the budgetLAMATA's operating costs LAMATA Annual and Additional road user chargesremains less than 6% of its Quarterly Reports can be collected, particularlyoverall expenditure in each from the third year onwardsyear

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Share of additional road user LAMATA Annual and State is given the right tocharges directly transferred to Quarterly Reports collect user charges by federalthe TF amount to at least 20% government

(US$ 1,000,000) at the end of2003, 40% (US$2,00,000) atthe end of 2004, 60%(US$3,000,000) at the end of2005, 80% (US$4,000,000) atthe end of 2006 and 100%(US$5,000,000) at the end of2007.Traffic Management Units in LAMATA Annual and LGAs support projectpriority LGAs are operational Quarterly Reports and Annualcommencing 2004 Reports of TMUsMaximum time lag for LAMATA Annual and Political influence onprocurement is three months Quarterly Reports LAMATA can be controlledMaximum time lag for LAMATA Annual and LAMATA is efficientpayment of invoices is one Quarterly Reportsmonth

2. Road network efficiency Road rehabilitated (kin) LAMATA Annual and Private sector road contractorsimproved Quarterly Reports and consultants deliver

Overlays placed (lane-km) LAMATA Annual and Private sector road contractorsQuarterly Reports and consultants deliver

Total delays (of people) at LAMATA Annual and Road network efficiency gainsmajor junctions Quarterly reports. are not used up by increased

private vehicle fleet

3. Bus services enhanced % of bus operation governed LAMATA Annual and LAMATA implements theby new regulatory framework Quarterly Reports regulatory framework.Implementation of the bus LAMATA Annual Report Private operators interested.pilot project by end of 2003

Water transport promoted Improvement/construction of LAMATA Annual and Consensus for location of jettiesetties for small boats Quarterly Reports can be established with private

operatorsPrivatization of LSFSC and/or LAMATA Annual and Private sector is interested insale of existing state owned Quarterly Reports the dealferries by end of 2004First ferry concession LAMATA Annual and Private sector is interestedoperational by end of 2004 Quarterly Reports

5. Future phases are being Transport Master Plan prepared LAMATA Annual and Consensus can be foundprepared in a participatory process by Quarterly Reports

end 2004

Transport Sector Institutional LAMATA Annual and Consensus can be foundReform Plan prepared by end o Quarterly Reports2004

Concession agreement for mass LAMATA Annual and Private sector is interestedtransit operator in the Agege to Quarterly ReportsIddo corridor signed by end of2006

Project Components Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)

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1. Capacity building $27.59m LAMATA Annual andQuarterly Reports and AnnualReports of TMUs

1. I LAMATA strengthening $21.35m TA is effectiveand operating costs1.2 Support to LSMT $0.52m Agency collaborates1.3 Support to LSMW $0.52m Agency collaborates1.4 Support to LSMW&P $0.52m Agency collaborates1.5 Support to Nigerian Police SO.52m Agency collaboratesTraffic Unit

1.6 Traffic Management $4.16m LGAs collaborateUnits in priority LGAs2. Road network efficiency 98.53m LAMATA Annual andimprovement Quarterly Reports2.1 Design of resettlement S2.23m RPF is appropriateplans and compensations2.2 Routine maintenance $14.41m Small scale contractors are

effective2.3 Recurrent maintenance $26.60m Medium and large scale

2.4 Periodic maintenance $23.22m contractors are effective2.5 Rehabilitation $15.43m2.6 Bridges $7.04m2.7 TSM $9.61m

3. Bus services enhancement $0.73m LAMATA Annual andQuarterly Reports

3.1 Regulatory framework $0.73m An effective regulatoryframework can be defined

4. Water transport $2.90m LAMATA Annual andpromotion Quarterly Reports4.1/4.2 Ferry privatization and $0.52m Private sector interestedfeasibility studies for ferrydevelopment4.3 Repair of landings $2.38m Private sector operators

collaborate5. Preparation of future $5.25m LAMATA Annual andphases Quarterly Reports. Study5.1 Transport master plan $2.08m reports. Consensus can be found5.2 Reform of MVA $0.83m Other agencies collaborate5.3 Strategy & plan for IMT $0.21m IMT become accepted5.4 Preparation of Rail Mass $2.13m Private sector shows interestTransit ProgramTOTAL $135.00m

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Annex 2: Detailed Project Description

NIGERIA: Lagos Urban Transport ProjectThe project supports the implementation of the transport sector policy and strategy of Lagos State

Government (LSG). The implementation of this policy and strategy will be done in severalphases and will require a period of several decades. The support to the implementation of phaseone of the strategy is the Lagos Urban Transport Project (LUTP). LUTP focuses on capacity

building, on maintenance and rehabilitation of the main road network, on establishing aregulatory framework for public transport operations and the promotion of water transportservices. It also finances the necessary studies for the preparation of the next phase of theimplementation of the policy and strategy.By Component:

Project Component 1 - US$27.59 millionCapacity buildingThis component focuses on institutional capacity building for the management and financing of thetransport system of metropolitan Lagos. The amount is planned to be financed as follows: IDA 13.32m,LSG $1.77m, and TF $12.50m. Following are sub-components:

1.1 LAMATA ($21.35m).: The act to establish LAMATA was signed into law on January 13, 2002, and adetailed framework for establishing LAMATA has been prepared by consultants and adopted by LSG as

the basis for the establishment of the agency. This sub-component provides assistance for LAMATA to

quickly develop the capacity to effectively discharge its duties. It includes the financing of:

1.1. 1 Office equipment and vehicles ($1.04m) - a total of 30 vehicles will be required;

1.1.2 Technical assistance ($1.3 7m) in areas such as road management, traffic management, public

transport planning, financial management, procurement, environmental and social assessment, traffic lawenforcement, transport economics, general management, etc. (a total of 66 man-months has beenestimated);

1.1.3 Training ($0.52m) for its staff, based on an annual training plan prepared by LAMATA andapproved by IDA prior to disbursement;

1.1.4 Information, Education and Communication ($2.65m). Under this sub-component assistance will

be provided to LAMATA to design and implement a communication policy, strategy, and action plan topromote dialogue and consensus and build broad-based partnerships toward achieving its objectives.Specific objectives under this sub-component are: (i) promote public acceptance of the LAMATApolicies, activities and services; (ii) build trust and social capital among LAMATA staff and stakeholdersin the transport system; (iii) create awareness among stakeholders of the Lagos urban transport situationand of the new system reform and development program; (iv) create understanding of individualopportunities and responsibilities in the new system; (v) induce behavior change among users of thetransport system; (vi) enhance stakeholder ownership and participation in the process of change; and (vii)promote accountability and good corporate governance within LAMATA. The IEC will in particular be

used to address issues under the project relating to resettlement, proposed reforms in bus operations,

poverty alleviation and gender. It has five elements: (a) development of internal communications within

LAMATA to build thrust between the Board, management and staff of LAMATA including assistance in

the establishment of the External Relations Unit; (b) external relations relating to external groups and

institutions impacted by the project; (c) social marketing and public education to support the design of

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campaigns and programs to gain awareness and acceptance of project proposals and inculcate neededbehavior change; (d) partnership development aimed at developing partnerships with agencies willing topartner with LAMATA in the execution of its activities; and (e) communication systems, to guaranteeefficient information delivery systems, particularly for road users. Under this sub-component, assistancewill be provided to prepare and implement a communication audit and strategy, conduct communicationand public education campaigns on specific themes, issues and programs the definition of which mayrequire additional studies and opinion surveys and purchase of communication equipment.

1.1.5 A detailed sectoral environmental and social assessment ($0.52m) - this will include a detailing ofthe Resettlement Policy Framework;

1.1.6 The elaboration of a cost recovery strategy and implementation plan ($0.21m) - based on theexisting preliminary work done during the preparation of the project, a cost recovery strategy will beelaborated to provide a road map for moving towards full cost recovery by the sector in the long term anda plan for ensuring that the maintenance needs of the declared road network are fully covered by usercharges by the end of the project;

1.1. 7 A traffic enforcement strategy and plan ($1.04m) to (a) fully develop the traffic enforcementframework developed during project preparation into a detailed strategy and plan in consultation with allrelevant stakeholders; and (b) implement the critical elements of the plan;

1.1.8 The construction of the LAMA TA building, including design and supervision, and its furnishing

($1.50m)

1.1.9 An externalfinancial, technical and organizational audit, financed entirely by the TF ($0.15m);

1.1.10 The operating costs of LAMA TA ($9.75m over a period offive years), financed entirely by the TF;

1.1. 11 Other activities required to implement the transport sector policy and strategy of LSG ($2.60mover a period offive years), financed entirely by the TF;

1.2-1.6 Strengthening the capacity of other agencies relevant to the implementation of the policy($6.24m). A large number of federal, state and local government level agencies are responsible for thedischarge of the various functions in the transport sector at state level. To assist implementation of thetransport sector policy and strategy, there is a need to strengthen the other agencies active in the transport

sector and relevant for the achievements of the sector objectives. (Clearly there is a need for long-termsector restructuring and this will be addressed by a study and a process supported by component 5). Thissub-component therefore provides TA, equipment and training to the following agencies:

1.2 Lagos State Ministry of Transport (LSMT) ($0.52m) to strengthen its policy-making and sectorperformance monitoring and evaluation functions;

1.3 Lagos State Ministry of Works (LSMW) ($0.52m) to improve its planning for road investments and tosolicit private interests for potential toll roads;

1.4 Lagos State Ministry of Women's Affairs and Poverty Alleviation ($0.52m) to strengthen its povertyand gender impact monitoring capacity to assist the Ministry be able to contribute to the implementationby LAMATA of the poverty assessment framework for the LUTP developed during project preparation;

1.5 Nigerian Police Traffic Unit ($0.52m) to enhance its traffic enforcement capacity in Lagos within the

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framework of the traffic enforcement strategy and implementation plan developed by LAMATA;

1.6 Assistance for the creation of Traffic Management Units (TMU) ($4.16m) in the following nineLGAs: Agege, Alimosho, Apapa, Eti-Osa, Koshofe, Mainland, Mushin, Oshodi-Isolo and Shomolu. Thiswill include (i) technical assistance in the design and setting up of the TMU; (ii) development of a LocalArea Traffic Plan and implementation program including costing; (iii) development of parking policy andimplementation plan; (v) development of traffic solutions to identified traffic and accident black spots;(iv) remedial works and planned maintenance on priority local roads; and (v) equipment and trainingsupport.

Project Component 2 - US$98.53 millionRoad network efficiency improvementThis component aims at full rehabilitation of the "declared"network, that is the main public transportroad network of 633 kilometers. The amount is planned to be financed as follows: IDA $78.91m, LSG$10.34m and TF $9.24m.

The size of road network in Lagos Metropolitan area is about 5,180 km (Federal Roads 591 km, StateRoads 2,743 km and Local Government Roads 1,846 km). Based on the findings of a study to define themaintenance and rehabilitation needs for the high priority bus public transport routes, 633 km (FederalRoads & Bridges 343 Iam, State Roads 275 km and Local Government Road 15 km) have been taken asthe initial size of the "declared" roads, for which LAMATA will take responsibility. 57% of the declaredroads are in good, 36% are in fair and 7 % are in poor condition. The component is designed to enhancethe efficiency of use of the declared road network, and has an objective to: (a) reduce the vehicleoperation costs by rehabilitating poor roads; (b) enhance the operation of buses by improving road safetyfor vehicles and pedestrian; and (c) carry out low cost, high impact TSM measures, which would reducetravel delays particularly on the congested road junctions.

LSG with support from consultants has prepared a road program aiming at bringing all declared roads togood and fair conditions within five years at an estimated total cost of $98.53m, which includes the costof design of Resettlement Implementation Plans, compensations, civil works and consulting services. TheConsultants have started the preparation of detailed engineering design and bidding documents for thecivil works in an amount estimated at $32m. However, during the first year the limited procurementcapacity of LAMATA and insufficient availability of counterpart funding will allow the work executionfor an estimated amount of $14m. The first year work program is based on the following priorities: (a)routine and recurrent maintenance to repair all damages including pot holes, depressions, and clearing ofside drains to improve drainage along the entire declared road network; (b) periodic maintenance(overlays) on roads in fair condition to ensure they remain in a maintainable condition; (c) rehabilitationand drainage improvement for the selected pilot bus route; (d) low-cost high impact TSM works toimprove road safety for vehicles and pedestrian on the prioritized road junctions (35 in numbers)including signing, lane marking, repairs to existing traffic lights and street lights, and new traffic lights tocontrol traffic movement; (e) repair all damages on the bridges; and (f) rehabilitation and drainageimprovement on other declared roads in poor condition.

The first year program has been selected based on consideration that it will not trigger any resettlementaction. Future annual programs might include some resettlement action concerning the relocation ofstreet traders. However, such action can only be taken after the necessary safeguards are in place.Consultants have prepared the detailed engineering design and the bidding documents for the first yearprogram are ready. Works should commence immediately after effectiveness of the credit in February2003. The first year work program has been packaged into suitable lots with contracts not exceeding 12months duration, as follows: (a) 62 lots of an average size of $50,000 equivalent suitable for smalllabor-based contractors for routine maintenance works amounting to about $3m equivalent; (b) 23 lots of

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an average size of $200,000 equivalent suitable for medium sized contractors using labor based and lightequipment work methods for recurrent maintenance works amounting to about $4m equivalent; (c) 2 lotsof an average size of $500,000 equivalent suitable for medium sized contractors for TSM activitiesamounting to about $ 1m equivalent; and (d) 8 lots of an average size of $3m equivalent for largecontracts for periodic maintenance, rehabilitation of roads and bridges amounting to about $23mequivalent.

During the first year LAMATA plans to award one pilot performance based maintenance andrehabilitation (PBMR) contract, and if successful, its use would be replicated for future road maintenancecontracts. LAMATA will also carry out a study on the structural analysis of the existing bridges to ensurethat the bridges are safe and are capable to withstand the load of current traffic volume and the projectedtraffic volume for the remaining design life of the bridges.

Following are the sub-components:

2.1 Resettlement Implementation Plans ($2.23m). This includes the design and the implementation ofsuch plan including compensation (which is fully financed from the TF).

2.2 Routine Maintenance Activities ($14.41m). These are cleaning activities of road surface and drainagesystems executed by small scale labor based contractors. The amounts will increase annually as thelength of network under periodic and rehabilitation contracts decreases.

2.3 Recurrent Maintenance ($26.60m). These are small localized repairs such as pot whole filling, repairof small sections of surface and drainage structure repairs executed by medium scale equipment basedcontractors.

2.4 Periodic Maintenance ($23.22m). These are bituminous overlays on road sections which aredegraded but structurally still intact. Such works are executed by large scale contractors.

2.5 Rehabilitation ($15.43m). These are repair works on road sections which are structurally damaged.Such works are carried out by large scale contractors.

2.6 Bridge Repair works ($7.04m). A total of 63 km of bridges (mainly federal) require a variety ofrepair works. Some of such works are very urgent if a collapse of the structure is to be prevented. Suchworks are executed by specialized large scale contractors.

2.7 Traffic System Management Measures ($9. 61m). These are mainly repair of existing traffic lights,installation of new ones and pedestrian safety measures, such as overpasses and zebra crossings (on lesstrafficked roads). Such works are executed by specialized medium and large scale contractors. Thecomponent also includes the detailed design of TSM measures in two local government areas.

Project Component 3 - US$ 0.73 millionBus services enhancement

This component will finance the preparation of a conducive regulatory framework for the privatesector provision of bus services (IDA $0.66m, LSG $0.07m)

Within metropolitan Lagos privately operated buses provide the overwhelming majority of collectivepassenger transport services. The lack of proper regulatory framework and adequate road infrastructure

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has led the sector to be dominated by single vehicle owners without collateral nor capacity to buildattractive business plans, putting into the market old vehicles with insufficient size and safety.

The component will focus on the technical assistance to LAMATA for a) the establishment of an

effective regulatory framework for the private provision of public transport services, and b) the

preparation of pilot bus franchise project by LAMATA for the introduction of better quality bus services

financed by the private sector.

The regulatory framework for the provision of bus services will include the formation of operators

associations on a route basis, and the setting up of a transparent competitive mechanism for the allocation

of time limited franchises on the main routes, while retaining the unregulated system outside of the corenetwork. The technical assistance will include recommending legal and regulatory framework reforms

and assisting LAMATA in their implementation (including preparation of an action plan and drafting of

appropriate regulations. These recommendations will take also into account their applicability to the

regulation of the water transport and the future rail mass transit.

This component will also provide technical assistance to LAMATA for the definition, the design and the

implementation of a pilot bus scheme. The pilot scheme will act as a demonstration project from which

lessons will be learned and data made publicly available for future risk assessment in the sector. It will

test the ability of the private sector, with limited financial assistance from the project, to purchase,operate and maintain a bus fleet and thus provide better quality and more efficient services on busy

metropolitan routes. It will also assist currently predominantly small operators to associate and create

operating companies with a track record of operation capable of attracting private financing in the future.

If the pilot project is successful and if stronger bus priority measures are implemented in the future on the

core bus routes network, as LAMATA will plan for in this project, such bus services will be profitable

and therefore sustainable. Once this pilot project is ready for implementation and upon approval from

IDA, this pilot project will be eligible for partial financing from the Transport Fund.

Project Component 4 - US$2.90 millionWater transport promotionWater transport is under-utilized in Lagos. However it has a potential to become an attractive mode of

transport for certain links (e.g. the short distance between Lagos Island terminal and Apapa Wharf and

for serving especially low-income communities such as in Makoko, and Ajegunle. It is also an importantmeans for the transportation of sand from their points of dredging along the Lagos lagoon. Thiscomponent consists of interventions to improve modal diversity within an integrated urban transport

system by promoting the enhanced provision and use of water transport by the private sector. It has three

sub-components.

4.1 Study for the privatization of Lagos State Ferry Services Company ($0.10m): The LSG has

earmarked the Lagos State Ferry Services Company (LSFSC) for privatization. It is however unclearwhether the ferries of the company should be rehabilitated before privatization and, indeed, if disposal of

the ferries and other assets of the LSFC would not be a better option to privatization of the LSFC. Theproject under this sub-component will therefore finance an enabling study to examine this issue and,

based on its outcome, prepare tender documents for the preferred option.

4.2 Feasibility studies for the development offerry services ($0.42m): To more fully explore the scope

for water transport services and to increase private sector involvement in their provision, this

sub-component will finance several studies for (i) the development and implementation of a detailed

strategic plan for improving the use of the waterways of Metropolitan Lagos for transport services with

specific focus on informal services; (ii) formulation and implementation of appropriate regulatory

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framework; (iii) feasibility studies and design of routes that have been identified as potential candidatesfor franchising, including one serving Lekki Island, and another serving Ikorodu; and (iv) promotion ofschemes for encouragement of private sector participation in the provision of water transport servicesespecially through improvement to boat designs and means of propulsion.

4.3 Repairs and spot improvements to terminals and waterways ($2.38m): Studies carried out haveindicated as one of the major constraints on existing and potential water transport services as theinadequacy in the provision of terminal facilities (existing ones are in poor condition and they aremissing on some routes). Additionally, spot improvements along some routes would help to shorten andor make some safer. This sub-component will finance repairs and spot improvements to terminals andwaterways to make existing services more attractive to users, to improve water safety and potentiallyopen new routes especially for operation by the informal sector which serve mainly the poor.

Project Component 5 - US$5.25 millionPreparation of future phases5.1-5.3 Studies ($3.12m): A variety of studies are required to assist the implementation of the transportsector policy and strategy and to prepare possible follow-on projects. TOR for these studies have beenprepared. These studies include: (a) participatory preparation of a Transport Master Plan for metropolitanLagos ($2.08m); (b) a study on the sectoral organization including the reform of the Motor VehicleAdministration; ($0.83m); (c) strategy and plan for the development of the use of intermediate means oftransport ($0.2 1m).

5.4 Establishing the frameworkfor Rail Mass Transit development ($2.13m): Feasibility studies carriedout on travel demand in metropolitan Lagos have confirmed the viability of a mass transit railwayoperating north - south within the existing right of way of the Nigerian Railway Corporation (NRC). Inits first phase, it will provide services between Iddo in the south and Agege in the north with a dedicatedbus operation to take passengers onward to Lagos Island south of Iddo station. In the future, the idea is toextend the service to Lagos Island and, later, eastward and westward to create an urban rail network inmetropolitan Lagos. Dialogue is on-going between LSG and NRC and its parent ministry, the FederalMinistry of Transport (FMT), for the use of the NRC corridor. The emerging agreement is expected to beconsolidated into a Memorandum of Agreement to be signed between the parties. Under the presentproject, the objective is to establish the framework for the construction and operation of the proposed railmass transit. This sub-component would therefore finance activities necessary for the franchizing/concessioning of the rail mass transit ($1 .25m) viz. (a) to delineate the corridor to establish theboundaries and the proposed division between the rail mass transit and NRC operations; (b) to seek tointerest the private sector in a potential concessioning arrangement for the operation of the rail masstransit by arranging for a limited 'road show' to solicit expressions of interest; finalizing the definition ofthe preferred option for the private sector's involvement, based on the responses received; launchingformal bids for the preferred option; evaluating bids; and concluding concession/ franchise agreementwith winning bidder; and (c) to prepare resettlement plans and compensation / land acquisition plans($0.80m)

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Annex 3: Estimated Project Costs

NIGERIA: Lagos Urban Transport Project

I * ;~. .*. ..- Lo'cal, '. ' . 'For,eig'n' : ,',''Total'.,P ''.Project Cos'tBy;ComTiponent ' - . US$mill,on -' lUS $mioihn,.; US milon

1. Capacity building 18.83 7.58 26.412. Road network efficiency improvement 56.31 30.40 86.713. Bus services enhancement 0.14 0.56 0.704. Water transport promotion 2.19 0.40 2.595. Preparation of future phases 1.01 4.04 5.05Total Baseline Cost 78.48 42.98 121.46

Physical Contingencies 5.72 2.96 8.68Price Contingencies 3.14 1.72 4.86

Total Project Costs 87.34 47.66 135.00Total Financing Required 87.34 47.66 135.00

; v- ,-t,-I S*; '.Local Foreign !. .)5Tota, J.Project Cost By,Category mUS $million. , , ___.-____

1. Works 51.53 29.55 81.082. Goods 2.16 0.45 2.613. Consultants' services, training & audits 15.42 12.99 28.414. Operating costs 9.38 0.00 9.385. Unallocated 8.85 4.67 13.52

Total Project Costs 87.34 47.66 135.00

Total Financing Required 87.34 47.66 135.00

Identifiable taxes and duties are O (US$m) and the total project cost, net of taxes, is 135 (US$m). Therefore, the project cost sharing ratio is 74.07%of total project cost net of taxes.

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Annex 4: Cost Benefit Analysis Summary

NIGERIA: Lagos Urban Transport Project

IntroductionThe economic evaluation for the LUTP was undertaken for each of the following project components and

sub-components: (i) the road network efficiency improvement component; and (iii) the rail mass transit

option (this to justify preparatory activities for that option, although no physical investments are plannedwithin LUTP). The economic analysis focused on the determination of the project cost and benefits and

alternative evaluation based on several economic indicators. The main results of the analysis are

presented below.

Trafric ProjectionDue to lack of past traffic data for roads included in the analysis, link-by-link estimated traffic data were

obtained from automatic and manual counts carried out on some selected roads. The estimated traffic

volumes along the main corridors obtained through automatic count method were carefully comparedwith the manual counts carried out in the secondary links to obtain interpolated estimates for other links

in the same neighborhood. In cases where this method was not applicable, the design capacity of such

road links was factored to estimate the current traffic data. Due to paucity of traffic data, the

determination of the various growth factors was difficult, necessitating the need to assess some other

growth indicators. The existing vehicle registration data were analyzed and compared with the growth

rate and performance of road sub-sector in the Gross Domestic Product (GDP). An annual growth rate of

3% was assumed to be reasonable for road traffic and was applied in the analysis.

Traffic projection for primary roads was based on the results of the analysis of traffic counts carried out

separately on screen lines along the major corridors (primary roads) in 1992 and 2001 by Unilag Consult

and other Consultants. The traffic volume analysis under the Mass Transit Railway Project showed a 6%

growth rate over the period of 1992-2001. The annual average growth rates for individual vehicles were:

cars -2.0%, taxis -5.4%, danfos 15.8%, molues -3.1%, staff buses 8.2% and goods vehicles 5.3% per

year. Based on previous study and with expectations for improved economy and generally favorable

socio-political climate, it was considered reasonable to assume the following annual growth projection

rates: 3% for cars, 4.5% for public transport vehicles, and 5% for trucks.

There was a significant switch of passengers from private cars to public transport over the last ten years.

The overall growth of passenger trips across all screen lines was 3.38% per year, but the growth rate for

public transport passengers was 4.74% compared with 0.2 1% per year for private vehicle passengers. The

passenger growth rates between 1991 and 2001 were considered to be appropriate for estimating growth

to the year 2007 which was considered to be the opening year for the railway. The traffic analysis

indicated annual passenger demand to be 3,690 million passenger km per year in 2007 growing to 4,327million passenger km per year in 2010 on the railway.

The growth rates estimated above are most likely an underestimate of the true traffic growth rates for all

cross sections other than screen line 1 across the bridges into Lagos Island. This is because the fare

structure in 1991 forced the majority of buses to use the road corridors adjacent to the rail corridor.

Thus, only a limited anount of public transport vehicles used the Third Mainland Bridge expressway to

the east of the corridor and the Apapa-Oworonsoki Expressway to the west. The fares system wasrelaxed since and public transport vehicles are now using these expressways to a significant extent.

However, no cross section traffic data were collected on the expressways in 1991, and the comparisons

given above do not reflect the rapid growth in public transport on these routes.

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Summary of Benefits and Costs:

Road Network Efficiency ImprovementThe economic analysis was undertaken by consultants to evaluate the viability of various investmentoptions for road and junction improvements. The road condition data and the appropriate unit costs formaintenance and rehabilitation works in addition to appropriate user costs were fed into the HDMprogram to determine the economic returns of investrnents. The model was used to make comparativecost estimates and economic evaluation of different policy options, including different time stagingstrategies and alternative project design. The analysis was carried out for 5 years period with 2002 as thebase year. Discount rate of 12% was applied in calculations.

Economic and Financial Cost: The economic analysis was completed for about 567 km of roadsexcluding the length of bridges that was considered separately. The total cost of US$102.80 million wasestimated for the implementation of road and junction improvement program over the five-year period.The cost estimates were made for following type of works:

routine and recurrent maintenance $45.53 millionoverlay and rehabilitation $46.17 millionbridge repairs $5.60 milliontraffic system management $5.50 million

Unit costs for various items of maintenance and rehabilitation operations were obtained from selectedexecuted contract documents, and subjected to further verification by consulting appropriate contractors.The unit costs for individual intervention strategies were provided into the HDM to perform economicanalysis for the defined road work options. The various costs and prices obtained were computed in bothfinancial and economic terms. While financial costs were composed of current market prices, taxes andduties; economic costs represented the real cost to the economy of the resources actually used inproviding the materials and services.

User Benefits: The quantification of road user benefits was made to evaluate the impact on user costs ifthe project were executed. A total of US$250.939 million were expected to result in savings from roaduser costs over the analysis period.

While the project would result in considerable benefits in terms of reduced vehicle operating costs andimproved traffic safety, the actual benefits from junction improvement were not quantified due toshortage of reliable data. Therefore, the economic indicators obtained in the analysis represent thelow-end of total realizable benefits.

Economic Analysis: Using HDM program, Benefit-Cost ratio of 3.66 was estimated for total roadprogram over the five-year period (see Table 1). The highest Benefit-Cost ratio (7.9) was expected to befrom Traffic System Management works due to high savings in accident cost. Benefit-Cost ratio forindividual road works ranged between 0.13 and 6.14, for about 95% of identified road works beingjustified.

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Table 1 Summary of Economic Analysis

Work Economic Cost Benefit NPV ERR Benefit/Cost(million US $) (million US $) (million US $) (%) Ratio

Routine and 45.53 62.867 17.337 48 1.4

recurrentmaintenanceOverlay and 46.17 134.510 65 2.9

rehabilitation 88.340Bridge repairs 5.60 10.102 4.502 52 1.8

Traffic system 5.50 43.460 37.960 58 7.9managementTota1' a i 102 80 1 250t93 9 0<. 148.139. 5357 V!eigh.ed

HDM program was used to calculate Economic Rate of Return (ERR) and Net Present Value (NPV) for

each of the proposed road works. NPV of road and junction improvement program was estimated to be

US$148.1 million with aggregate ERR of 55.7%. For 99% of the individual road projects identified, ERR

was greater than 12% (minimum attractive rate of return) ranging from 12.4% to 114.1%. The selection

of individual road projects for the first year program was based on the options producing higher NPV and

ERR being above the minimum attractive rate of return. First year program was prepared for 100.77 km

of roads which would result in US$95.44 million of user benefits (see Table 2).

Table 2 Economic Analysis of First Year Road Irnprovement Program

Works Financial Cost Economic Cost Benefits NPV IRR(million US $) (million US $) (million US $) (million US $) %

Asphalt 8.594 8.179 38.63 30.451 62

concreteoverlayRehabilitation 15.540 14.763 46.89 32.127 57

Upgrade to 4.190 3.988 9.92 5.932 48

paved roadTotal 28.035 26.682 95.440 68.458 56

Rail mass transitEconomic analysis was done to justify the preparatory activities financed under this project for the

implementation of rail mass transit in a possible follow-on project. It was based on a detailed study of the

railway carried out over 1992 to 1994 under the "Mass Transit and Transport Systems Management

Program for the Lagos Metropolitan Area". The previous forecasts were based on a relatively simplistic

model which is now nearly ten years old. The present analysis is an update of the previous study and

provides an indication of the economic and financial viability of the rail mass transit and thus

justification for its more detailed examination under the LUTP as sub-component 1.3.

Costs: Total rail project cost was estimated to be US$127.5 million. Financial and economic analysis was

carried to estimate variable cost per passenger km. The cost of trains were annualized based on a train

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life of 30 years and a real financial interest rate of 6% and an economic discount rate of 12%. In theopening year for the railway the cost per passenger-km was estimated to be US$0.00895, decreasing toUS$0.00855 when the full service would be in operation in 2010. These costs can be compared with theweighted average cost on existing danfos and molues of $0.0233/pass-km. Thus, the cost by rail would beless than 50% of the cost by road. This is unusual result reflecting the unusual circumstances for thisrailway with low peak-hour factor and demand being remarkably high throughout the day and balanceddirectionally.

The financial analysis showed a real rate of return of 19% on the combined investment in bothinfrastructure and locomotives and coaches. Assuming that infrastructure is considered as a sunk cost, thefinancial return on locomotives and coaches alone rose to 36%. The sensitivity analysis demonstratedthat even with demand at 50% of that in the base case, the return on locomotives and coaches would beabove 15%.

Benefits: Economic benefits were estimated for: savings in operating costs, savings in time, reduction inroad congestion and benefits to improvements to the level of service. Savings in operating costs betweenrail and road were determined from deriving the cost per passenger km on the road and comparing thesewith the equivalent rail costs. Based on surveys of operators carried out in 2001/02, the weighted averageoperating cost for danfos and moules were estimated to be US$0.0223 per passenger km. The analysisshowed that variable costs of railway operation would reduce to US$0.00726 per passenger km due toproject implementation. Time savings from the initial study were factored by the ratio of the value oftime in 1992 and the value of time in 2001 resulting in an estimated congestion time savings of US$7.545million per year in the opening year. Overall, the mass transit railway improvement would give US$880million in benefits as follows:

reduction in operating costs US$299 milliontime savings US$258 millionimproved level of service US$275 millionreduction in congestion US$48 million

The basic economic analysis showed a very high rate of return of 72%. This was based on relatively highvalue of time, high weighted existing bus operating costs and the introduction of "level of service"benefits.

Main Assumptions:Several assumptions were made performing economic analysis. Vehicle operating cost (VOC) wascomposed largely of all the expenditures associated with owning and operating motor vehicles, includingmotor fuel and lubricants, tires, vehicle maintenance and labor costs, crew time and cargo delay costs,and the prevailing interest rate. The cost of passenger time was also considered where the delay in traveltime would have been otherwise used in economically productive activities. Only those time savings thatwould have been put into economically productive use were considered as benefits to the economyresulting from road improvement. Under this study, it was difficult to estimate the value of time;however, a weighted average value of N53.30 per hour representing the public transport passengers'willingness to pay was adopted for work trips and non-work trips in the economic analysis. This valuewas adopted from the result of a survey of 346 passengers conducted in November 2001 under the LagosMass Transit Project (LMTP).

It was difficult to obtain relevant past data on road safety in Lagos metropolis. A set of values foraccident cost provided in LUTP study of 1992 was adopted on the basis of international comparisons toestimate the overall accident cost. A total sum of US$58.95 million was estimated as annual loss in

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accidents due to inadequacies in road design, poor road signalization, poor vehicle conditions and poor

driving habits. It was assumed that reduction in accident related losses would constitute savings orbenefits associated with recommended TSM measures.

For the economic and financial analysis of the railway following assumptions were made: (i) the railway

will only carry public transport passengers who will divert from danfos and molues; (ii) the majority of

these passengers in the existing corridor (65%) are danfos passengers; (iii) passengers on molues tend to

make longer trips so the proportion of the trips that will divert to rail from danfos will be slightly lower

than the 65% figure for danfos in the existing corridor; (iv) average danfo fare is N4.50 per passenger km

compared with N1.64 per passenger km.(<l.5 US cents/pass. kIn) for a molue. The weighted average fare

for a molue included the fares paid by standing passengers as well, which are between 50-75% of seated

fares. Therefore, the fare for a molue used in the basic analysis was 36% of the average danfo fare andwas on the conservative side.

Sensitivity analysis / Switching values of critical items:Performing economic analysis, uncertain future values of different variables were used. It was necessaryto evaluate the impact of changes in these variables performing sensitivity analysis. The mainassumptions tested for road network efficiency improvement were: (a) changes in investment cost, (b)

changes in benefit, (c) changes in applied discount rate, and (d) changes in traffic growth rate. The risk

analysis was performed to assess the probability of the project component being economically viable andjustified if changes in estimated values occur. This probability profile was based on strings of estimatesfor cash inflows and outflows, ranging from possible best to possible worst scenario and including themost likely one. Table 3 shows the summary of project sensitivity analysis carried out.

Table 3 Summary of Sensitivity Analysis for road improvement project

Tested Scenarios NPV ERR(US$ million)

Change in Cost/Benefit15% increase in cost, same benefit 132.719 50%10% reduction in cost, same benefit 158.419 64%20% reduction in benefit, same cost 97.951 42%20% increase in benefit, same cost 198.327 69%Change in Discount Ratediscount rate at 24% 133.707 49%discount rate at 6% 156.433 67%

Chance in Traffic Growth Rateat 3% (Base Case) 148.139 56%at 5% 246.899 93%at 1% 64.489 24%

The results of sensitivity analysis showed that, even in the worst scenarios assumed, the road networkimprovement project would still be viable and justified from economic point of view producingsignificant benefits and giving economic rate of return much greater than the minimum attractive rate of

return.

The base case analysis for mass transit railway considered the real financial returns from investing in the

infrastructure and the train sets and indicated the financial rate of return of 18.6%. The financial returns

are critically dependent upon the demand and fares. Sensitivity analysis was carried out for the combined

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investment of infrastructure and the train sets and for train sets only (see Table 4).

Table 4 Financial sensitivity analysis for the mass transit railwaySensitivity test Financial IRR (%)

For the combined infrastructure and train set investmentBase case 18.650% decrease in demand with the same train set 8.050% decrease in demand with the train sets adjusted to meet demand 12.3Fare at 80% of base case 11.3For train set onlyBase case 35.650% decrease in demand with the same train set 16.350% decrease in demand with the train sets adjusted to meet demand 19.6Fare at 80% of base case 23.2

The sensitivity analysis indicated that the real financial returns will be above 10% except for the combinedinfrastructure and train set investment when demand is only 50% of that estimated in the base case and thenumber of train sets are not adjusted to meet the lower demand.

Consideration was also given to the impact increased fares might have on demand on railway. The analysisshowed that if a fare would be increased for 7.5% 40% of trips would be lost and if an increase in farewould be 15%, 50% of trips would be lost. Thus, gross revenues would decrease with any fare increase.

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Annex 5: Financial SummaryNIGERIA: Lagos Urban Transport Project

Years Ending

| Year1 I Year 2 | Year 3 Year 4 Year 5 Year 6 | Year 7Total Financing Required

Project CostsInvestment Costs 19.8 24.3 17.4 12.4 8.9 0.0Recurrent Costs 7.5 8.7 11.0 12.3 12.7 0.0

Total Project Costs 27.3 33.0 28.4 24.7 21.6 0.0 0.0Total Financing 27.3 33.0 28.4 24.7 21.6 0.0 0.0

FinancingIBRDIIDA 20.3 26.0 21.4 17.7 14.6 0.0Govemment 5.6 4.2 2.8 1.4 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0Provincial 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0Transport Fund 1.4 2.8 4.2 5.6 7.0 0.0Total Project Financing 27.3 33.0 28.4 24.7 21.6 0.0 0.0

Main assumptions:Total Project cost: US$ 135.0 million.Year 1 = calendar year 2003; year 2 = calendar year 2004, year 3 = calendar year 2005, year 4 calendaryear 2006, and year 5 = calendar year 2007Recurrent costs include operating costs of LAMATA, miscellaneous expenses of LAMATA, and the cost ofroutine and recurrent maintenance. The operating costs of LAMATA do not decrease in this table. In orderto keep LAMATA's operating costs below 6% of its overall budget in each year of operation, LAMATA willhave to increase its overall budget or decrease its operating costs.

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Annex 6(A): Procurement Arrangements

NIGERIA: Lagos Urban Transport Project

Procurement

Procurement methods (Table A)

l. The procurement system in Nigeria is in the process of being reformed at all levels. The government

procurement reform program was fashioned in line with the recommendations of the year 2000 Nigeria

Country Procurement Assessment Report (CPAR). All the three tiers of governments are operating under

the Financial Regulations (FR), which are essentially an intemal set of rules for economic controls. The

CPAR identified major weaknesses in the procurement polices and practices in Nigeria and made

appropriate short-, medium- and long-term recommendations. Based on the short-term recommendations

of the 2000 Nigeria CPAR, the procurement procedures section of the FR at the federal govermment

level, was revised on June 27, 2001, to ensure clarity and transparency by incorporating details of the

various procurement methods and their applications for goods, works and services among others. For

now, this revision applies only for federal projects as the states are yet to adopt these changes. However,

it is envisaged that the states and local governments will adopt the revised FR. To make this possible, FG

is making arrangements to disseminate the findings and recommendations of the CPAR at State and

LGAs Levels. The ineffective Federal and Departmental Tender Boards have been abolished while the

Ministerial Tender Boards have been strengthened with powers to approve contract awards. Also a

Procurement Reform Implementation Unit (PRtU) and a Steering Committee that would initiate and

supervise initial implementation of reforms have been established at the federal government level. The

reforms have five main features:* Enactment of a new procurement law based on the UNCITRAL model law.

* Establishment of a public procurement oversight body, the Public Procurement

Commission (PCC), independent of the Tender boards with responsibility for the

efficiency and effectiveness of the procurement function across the public sector

* Revision of key areas of the Financial Regulations to make them more transparent.

* Deep restructuring of Tender Boards and approval procedures for contracts. Specifically,

abolish Federal Tender Board and Departmental Tender Boards and strengthening

Ministerial Tender Boards by vesting them with powers to approve contract awards.

* Building procurement capacity in the public sector through a restoration of

professionalism in procurement and intensive training of procurement staff.

Until government takes major steps to reform the procurement policies and practices in the country

(presumable the reform process will reach an advanced stage by FY04), procurement risk for doing

business in Nigeria are assessed as high. Therefore the procurement risk for the proposed project is rated

"high".

Use of Bank Guidelines

2. All goods, works and services financed under the IDA credit will be procured in accordance with the

appropriate IDA Guidelines (Guidelines: Procurement under IBRD Loans and IDA Credits, January

1995 and as revised in January and August 1996, September 1997, and January 1999; and Guidelines:

Selection and Employment of Consultants by World Bank Borrowers, January 1997 and as revised in

September 1997 and January 1999). To the extent practicable Bank's standard bidding documents for

goods and works, and Standard Requests for Proposals for consultants as well as all Bank's standard

evaluation forms will be used throughout project implementation. Since National Standard Bidding

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Documents do not exist, the, Bank's Standard Documents for goods and works shall be adopted (in the

form satisfactory to IDA), for use for all NCB procurement packages under the project. However, NCB

procedures will ensure that (i) bids will be advertised in national newspapers with wide circulation; (ii)

the bid document clearly explains the bid evaluation and award criteria; (iii) bidders are given adequate

response time (minimum four weeks) to prepare and submit bids; (iv) bids will be awarded to the lowest

evaluated bidder and not arbitrarily; (v) eligible bidders, including foreign bidders, will not be precluded

from participating; and (vi) no domestic preference margins are applicable to domestic manufacturers or

suppliers.

Advertising

3. A General Procurement Notice (GPN) was published after Negotiations in the UN Development

Business and in a national newspaper as provided under the Guidelines. The GPN will be updated on a

yearly basis and will show all outstanding International Competitive Bidding (ICB) for goods and works

contracts and all International consulting services. In addition, a Specific Procurement Notice (SPN) is

required for all goods and works to be procured under ICB and Expressions of Interest (EOI) for all

consulting services with a value in excess of US$ 100,000. All NCB procurement packages for goods and

works will be advertised in the national dailies. The related bidding documents for goods and works will

not be release, and the short list for consultant services will not be prepared before eight weeks after the

GPN has been published. Sufficient time will be allowed to obtain the bidding documents.

Procurement Capacity Assessment

4. A formal assessment of the capacity of LAMATA (Project Implementing Agency), has been

conducted in accordance with Procurement Services Policy Group (OCSPR) guidelines dated August 11,

1998. The assessment outlines the main issues and recommendations and is in the project files.

Generally, the existing procurement polices and practices in Lagos State are based on the State Financial

Regulations derives from the FGN FR. The methods used by state government in administering her

(government funded procurement packages) in most cases are neither economical nor totally transparent.

There is generally a lack of appropriate procurement planning leading, in many cases, to uneconomic

procurement. However, the procurement management of the Lagos Urban Transport Project Preparation

Office (LUTPO - a unit under the Governor's Office implementing the PHRD Grant) was assessed and

found satisfactory. Though, LAMATA is not established yet, the Statute (Bill) under which LAMATA

will operate has been passed by the Lagos State House of Assembly and was signed by the Governor on

January 13, 2002. In application, the Bill will be supported by comprehensive regulations. To facilitate

proper implementation of the project, the following action plan was agreed with the Borrower:

Risk Mitigation Plan

Action Responsibilities Status

I Finalization of the Project Implementation Plan LUTPO Submitted.

(PIP) including procurement plan

2 Establishment of proper filling system (using LUTPO Ongoing, completion by

PHRD grant as test case) end October, 2002

3 Preparation of a Procurement Procedures Consultant On-going. Completion

Manual by end October, 2002.

4 Employment of a Procurement Specialist and LAMATA Management Initiated for completion

two Procurement Officers by end November 2002

5 Procurement staff is trained Procurement unit Commnencement in

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December 2002 andthereafter on acontinuous basis

6 Procurement Capacity Assessment of Bank staff and LAMATA For completion beforeLAMATA Secretariat. effectiveness

7 Hold contract management workshop LAMATA/Bank February 2003.

Procurement Planning

5. The Borrower prepared a long-term procurement strategic plan, and a detailed procurement plan forthe first year activities which was discussed during negotiations. These plans will be updated yearly, sentto IDA for clearance not later than three months before the end of each fiscal year. A project launchworkshop will be organized after effectiveness to familiarize LAMATA Management and otherinstitutions that shall be involved in the project, with Bank procedures. The workshop will coverprocurement policy and procedures and their applications to the procurement arrangement planned forproject implementation, disbursement, reporting and auditing requirements. LAMATA has hired theservices of a consultant to assist the project prepare a comprehensive procurement manual acceptable to

IDA, by end October 2002.

Procurement Implementation Arrangements

6. The overall coordination and implementation of the project procurement activities will be theresponsibility of the LAMATA Board. However, all procurement decisions including signing of allcontracts (perhaps with the exception of contracts above a certain threshold to be defined in theProcedures manual) will be delegated to the MD of LAMATA. LAMATA will employ three qualifiedand experienced staff (one Procurement Specialist and two Procurement Officers), who will beresponsible for the day to day management of all procurement functions. These staff will be recruitedusing competitive process acceptable to IDA. The project will provide procurement staff with relevanttraining opportunities as part of its capacity building efforts. The training will focus on best practices inpublic procurement especially World Bank procurement procedures. In the framework of the agencyregulations, LAMATA will form a Contract Committee and a Procurement Unit (PU). PU will work inclose consultation and collaboration with other units of LAMATA before taking procurement decisions.LAMATA Management will engage experienced Consultants for the design, supervision and orpreparation of bidding documents, evaluation reports etc., as deem necessary. LAMATA will set up acomputer based contract management system to monitor the progress of all on-going contracts andevaluation of completed contracts. Furthermore, LAMATA will keep a track record on the performanceof individual contractors and consultants, which will be used in carrying out pre- or post-qualification ofcontractors and consultants.

Procurement Methods

Goods (US$2.70 million)

7. The project will finance items such as vehicles, computers and accessories, communication equipmentand other supplies. To the extent possible and practicable, goods and equipment to be purchased byLAMATA will be grouped into bid packages to take advantage of bulk purchase. Each contract estimatedto cost the equivalent of US$150,000 or more will be procured under ICB procedures using IDAStandard Bidding Documents. Each contract for goods estimated to cost less than US$150,000 up to an

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aggregate of US$1,620,000 will be procured through National Competitive Bidding (NCB) using

procedures acceptable to IDA. Procurement for readily available off-the-shelf goods that cannot be

grouped or standard specification commodities for individual contracts of less than US$30,000, up to an

aggregate of US$1,080,000 will be procured using shopping procedures as detailed in paragraph 3.5 and

3.6 of the Guidelines. Procurement of goods and hiring of facilities for training purposes, such as

workshops, will also be carried out using Bank shopping procedures.

Procurement from United Nations Agencies:

8. Notwithstanding the above provisions, vehicles and equipment up to an aggregate amount notexceeding US$ 1,000,000 may be procured from IAPSO.

9. To ensure that these limits are observed, each quarterly progress report of the project will include a

table setting out the number and value (in US$ equivalent) of contracts issued through Local,

International Shopping and National Competitive Bidding during the quarter as well as the cumulative

total value (in US$ equivalent of contracts under each of these two procedures from the date of the

project start-up.

Civil Works (US$92.44 million)

10. The project will finance civil works contracts, mostly road works for routine and periodic

maintenance, rehabilitation, bridge repair and traffic system management measures. Furthermore, the

project will finance the construction of jetties for small boats and ferries and the construction of the

LAMATA building. Many civil works contractors in Nigeria are not appropriately qualified. They may

wish to participate and be considered for contract award if the project publishes the Invitation for Bids

without conducting pre-qualification. The bidding process, especially bid evaluation, may become

cumbersome, and there may be pressure on LAMATA to engage such unqualified contractors. Therefore,

pre-qualification will be required for contracts estimated to cost US$ 1,000,000 equivalent and more. The

pre-qualification exercise will be conducted yearly and transparently based on the procurement plan. The

pre-qualification notification will specify the 4-5 civil works contracts that exceed the estimated amount

of US$ 1,000,000 equivalent. Individual civil works contract, estimated to cost equivalent of

US$ 1,000,000 or more, will be procured under ICB procedures using IDA Standard Bidding Documents.Each contract for civil works, estimated to cost less than equivalent of US$ 1,000,000 up to a total

aggregate of US$45 million, will be procured through National Competitive Bidding (NCB) using

procedures acceptable to IDA. Under NCB, the procedures should ensure that: (i) evaluation criteria to

be used for award of contracts are made known to all the bidders and not be applied arbitrarily; (ii) all

bidders are given adequate response time (four weeks) for preparation and submission of bids; (iii) bid

evaluation and bidder qualification are clearly specified in the bidding documents; (iv) no preference

margin is granted; (v) interested eligible foreign firms are not precluded from participation; (vi) award of

contract will be made to the lowest evaluated responsive bidder; (vii) the bid evaluation reports will

clearly state the reasons to reject any non-responsive bid; and (viii) prior to issuing the first call for bids,

the draft standard bidding documents prepared by LAMATA will be submitted to IDA for review andclearance.

Consulting Services and Training (US$30.11 million)

11. Consultants Services: These services include (i) engineering services for the preparation of

feasibility studies, detailed design, tender documents, supervision of works, and data collection; (ii)

technical assistance for advisory services in procurement, audit, accounting, and financial management;

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(iii) strengthening institutional capacity through the establishment of adequate policy regulatory andinstitutional framework; (iv) resettlement and land acquisition studies; (v) short-term consultant serviceson specific technical matters including road safety audits, TSM measures to improve traffic flow,structural investigations for bridges; road and bridge management system, and GIS. As a rule, consultantservices will be procured through Quality and Cost Based Selection (QCBS) methodology. Allconsultancy assignments estimated to cost US$100,000 or more will be procured through QCBS and willbe advertised in Development Business and in at least two national newspapers. In addition, the scope ofthe service may be advertised in an international newspaper or magazine seeking "expressions ofinterest." In the case of assignments estimated to cost less than US$100,000 the assignment may beadvertised nationally and the shortlist may be made up entirely of national consultants in accordance withsection 2.7 of the Consultant Guidelines (ie that at least three qualified national firms are available in thecountry and foreign consultants who wish to participate are not excluded from consideration).Consultant services estimated to cost less than the equivalent of US$ 100,000 may be contracted bycomparing the qualifications of consultants, who have expressed an interest in the job or who have beenidentified. All consulting services of individual consultants will be procured under individual contractsin accordance with the provisions of paragraphs 5.1 to 5.3 of the Guidelines. Consultants for assignmentsof a standard routine nature such as audits and engineering design of simple works that are smaller than$100,000 may be selected on the basis of least-cost method. LAMATA may use single source selectionmethod consistent with the provisions of paragraph 3.8 to 3.11 of the guidelines.

12. Training: At the beginning of each year, LAMATA will submit their proposed staff developmentplans for the coming year. The plans would indicate the persons or groups to be trained, the type oftraining to be provided, the level of competency that each participant would be expected to achievethrough this training, the provider or location of the training, and its estimated cost. Some trainingwould take place in-country, either at registered training institutions or by contracting national, regionalor international experts to provide specialized training. Training and workshops will be carried out onthe basis of approved annual programs, to be review by IDA. All training contracts costing US$15,000equivalent or more per contract, will be let competitively, to the extend possible.

Prior Review Threshold (Table B)

IDA Prior Review

13. Table B provides the prior review thresholds. Each contract for goods estimated to cost US$150,000equivalent or more will be subject to IDA prior review as per paragraph 2 of appendix I of theGuidelines. Also each civil works contract estimated to cost US$500,000 equivalent or more will besubject to IDA prior review. The first two National Competitive Bidding packages for civil works shallalso be subject to IDA prior review. All pre-qualification packages and all procurement from UNagencies will be subject to IDA prior review. Other contracts will be subject to post review in accordancewith paragraph 4 of Appendix I of the Guidelines. All consulting contracts costing US$ 100,000equivalent or more for firms and US$50,000 and more for individuals will be subject to IDA priorreview. Any exceptional extensions to non-prior review contracts raising their values to levels equivalentor above the prior review thresholds will be subject to IDA clearance. All training contracts costingUS$15,000 equivalent or more per contract, will be subject to IDA prior review.

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

| ' ;-I-i ' ~ |* - * s,q, - .: Procurement g

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'-'en,di~tur;Catego-rry .- gFs,-i9, gj>.'.~ JNC ; i '; 9;it N Total Cost"

1. Works 51.35 41.09 0.00 0.00 92.44

(41.51) (33.21) (0.00) (0.00) (74.72)

2. Goods 0.00 1.62 1.08 0.00 2.70

(0.00) (1.36) (0.90) (0.00) (2.26)

3. Services 0.00 0.00 30.11 0.00 30.11

(0.00) (0.00) (23.02) (0.00) (23.02)

4. Operating costs 0.00 0.00 9.75 0.00 9.75

(0.00) (0.00) (0.00) (0.00) (0.00)

Total 51.35 42.71 40.94 0.00 135.00

(41.51) (34.57) (23.92) (0.00) (100.00)

"Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies.

2'Includes civil works and goods to be procured through national shopping, consulting services, services of contractedstaff of the project management office, training, technical assistance services, and incremental operating costs relatedto (i) managing the project, and (ii) re-lending project funds to local government units.

Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

Contract Value Contracts Subject toThreshold Procurement Prior Review

Expenditure (US$) Method (US$ millions)

Category1. Works US$1,000,000 and above ICB All

NCB AllUS$500,000 - 1,000,000 NCB 1st two contracts, then

<US$500,000 post review.

Pre-qualification AllUS$1,000,000 and above

2. Goods US$150,000 and above ICB All

US$30,000-US$ 150,000 NCB 1 st contracts, then postreview

Less than US$30,000 Shopping Post review

All procurement from UN Agencies AllUN Agencies

3. Services US$100,000 and above QCBS All

Below US$100,000 CQ Post review(firms)

US$50,000 and above IC All(individual)

Below US$50,000 IC Post review(individual)

4. Training US$15,000 and above CQ All

Total value of contracts subject to prior review: $88 million

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Overall Procurement Risk Assessment --- HighIn view of high procurement risk, at least 20% of the total number of contracts below prior review threshold

will undergo Post Procurement Review (PPR) during every supervision mission.

Frequency of procurement supervision missions proposed: One every 6 months (includes specialprocurement supervision for post-review/audits)ICB - International Competitive Bidding; NCB - National Competitive Bidding; QCBS - Quality and

Cost Based Selection: CQ - Selection Based on Consultants' Qualifications; IC - Individual Consultant.

IThresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance

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Annex 6(B) Financial Management and Disbursement ArrangementsNIGERIA: Lagos Urban Transport Project

Financial Manaeement

1. Summary of the Financial Management Assessment

A. General

1. Objective of the Project Financial Management System: The financial management (FM) arrangements

for LAMATA are aimed at ensuring efficient disbursement of funds, and compliance with acceptable

accountability standards and the Bank's reporting requirements. The FM system will support the Agency's

management to ensure economy, efficiency and effectiveness in delivering its services. Specifically, the FM

system will be capable of producing timely, relevant and reliable financial information that will enable the

management of the Agency to plan, implement, monitor and appraise the overall progress towards the

achievement of its objectives.

2. Implementing Entities: LAMATA will be responsible for project execution, including procurement,

financial management, disbursement and reporting activities. A Finance Department will be established at

LAMATA which will be headed by a Director of Finance, a chartered accountant with vast experience. The

Director will be supported by appropriately qualified accountants. The Finance Department will have overall

responsibility for the management of the credit. Specifically, it will be responsible for (a) preparing activity

plans, monthly SA reconciliation statement, and quarterly SOE withdrawal schedule, quarterly financial

monitoring reports, and annual financial statements; and (b) ensuring that the project financial management

arrangements are acceptable to the Government and IDA. It will also forward the reports and statements to

the State Ministry of Finance and IDA.

B. Risk Analysis

3. Inherent Risks: The Country Financial Accountability Assessment (CFAA) revealed that the systems for

planning, budgeting, monitoring and controlling public resources in Nigeria have deteriorated to a level that

they do not provide any reasonable assurance that funds are used for the purpose intended. The risk ofwaste, diversion and misuse of funds was assessed as high. Although a State Financial AccountabilityAssessment (SFAA) has not been conducted for Lagos, it can be reasonably assumed that the financial

management risk will not be radically different from the assessed risk at the federal level.

4. Control Risks: The overall project risk from a financial management perspective is considered high.

Nevertheless, various measures to mitigate these risks have been agreed. The measures include resolution of

the significant financial management weaknesses tabulated in paragraph 6, and implementation of the

actions listed as credit effectiveness conditions in Section G. Additionally, the financial management

arrangements for LAMATA are designed to ensure that funds are used for the purpose intended, and timely

information is produced for project management and government oversight, and facilitate the Agency's

compliance with IDA fiduciary requirements.

5. Strength: The Government of Lagos State is dedicated to the improvement of the State's transport sector.

To foster this, a bill establishing LAMATA has been passed and signed to law (ACT) on January 13, 2002

by the Lagos Sate House of Assembly. A framework for the establishment of LAMATA has been prepared

and is being reviewed by consultants. The framework include the establishment of Finance Department and

Intemal Audit Unit with appropriately qualified staff.

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6. Weaknesses: Significant weaknesses and how they will be addressed are listed below:

Significant Weaknesses ResolutionAgency is yet to be established. Therefore, Finance * Commence operations of the Agency.Departmnent and Internal Audit Department are not yet * Set up the Finance Department and the Intemal Audit Unit.in place.The Director of Finance and Intemal auditor are yet to * Appoint a Director of Finance and Internal Auditor withbe appointed appropriate qualification and experience on clearly defined

Terms of Reference (TOR) that are acceptable to IDA. Also,appoint appropriately qualified support staff.

Financial Management Systems are yet to be developed * Retain a FM consultant to design the FM arrangements andprepare a detailed Financial Procedures Manual (FPM) forLAMATA.

* FM consultant to design and install a computerized FMS inLAMATA, and to train staff.

LAMATA is a new Agency with no experience in * Training and capacity building activities in IDA procedures willmanaging Bank funds. be provided.

* FMC will train the staff of Finance Department in LAMATA onthe use of the accounting system.

* Adequate auditing arrangements will be put in place.* Regular supervision by Bank staff.

Extemal Auditors have not been appointed * Relevantly qualified, experienced and independent extemal auditorswill be appointed by LAMATA on TORs acceptable to IDA.

C. Financial Management System

7. Funds Flow and Banking Arrangements: The overall project funding will consist of IDA Credit,Counterpart Funds and user charges to be transferred into the Transport Fund. IDA will disburse the creditthrough a Special Accounts (SA) opened and operated by LAMATA. IDA will sign a credit agreement withFMF, and FMF will sign a subsidiary agreement for on-lending credit proceeds with Lagos State.

8. The following accounts will be maintained by LAMATA:i) A SA in US Dollars to which the initial deposit and replenishments from IDA funds will be lodged;ii) A Current (Draw-down) Account in Naira to which draw-downs from the SA will be credited once ortwice per month in respect of incurred eligible expenditures Following the immediate payments of eligibleexpenditures, the balance on this account should be zero;iii)A Current (Project) Account in Naira to which Counterpart Funds will be deposited; andiv) A Current Account in Naira into which receipts on Transport Funds by the state will be deposited.Interest income will be deposited to the respective accounts.

9. Additionally, LAMATA will maintain an IDA Ledger Loan Account (Washington) in USDollars/Naira/SDR to keep track of drawdowns from IDA credit. The account will show (a) deposits madeby IDA, (b) direct payments by IDA, and (c) opening and closing balances.

10. All bank accounts will be reconciled with bank statements on a monthly basis by the FinanceDepartment of LAMATA. A copy of each bank reconciliation statement together with a copy of the relevantbank statement will be reviewed monthly by the Director of Finance who will expeditiously investigateidentified differences. Detailed banking arrangements, including control procedures over all banktransactions (e.g. check signatories, transfers, etc.), will be documented in the FPM.

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Funds Flow Diagram

Sources of Funds IDA Government TransportCounterpart Funds

Funds

SA in USBank Accounts Dollars

Current (Draw- Current (Project) Current (TF)Bank Accounts down) Account in Account in Naira Account in

Naira Naira

11. Disbursement Arrangements: By effectiveness, the Project will not be ready for report-baseddisbursements. Thus, at the initial stage, the transaction-based disbursement procedures (as described in theWorld Bank Disbursement Handbook) will be followed, i.e. direct payment, reimbursement, and specialcommitments. When project implementation begins, the quarterly Financial Monitoring Reports (FMRs)produced by the project will be reviewed. Where the reports are adequate and produced on a timely basis,and the borrower requests conversion to report-based disbursements, a review will be undertaken by theTask Team Leader (TTL) to determine if the project is eligible. Detailed disbursement procedures will bedocumented in the FPM.

12. Planning and Budgeting: Cash Budget preparation will follow Lagos State's procedures. Also, financialprojections for the life of the project (analyzed by year) will be prepared. Towards the end of each fiscalyear of the project, the Director of Finance, in consultation with the Managing Director and otherdepartmental heads, will prepare the cash budget for the coming year. The cash budget will include the

figures for the year, analyzed by quarter. The cash budget for each quarter will reflect the detailedspecifications for project activities, schedules (including procurement plan), and expenditure on monthlyand quarterly project activities. (Additional guidance on the preparation of cash budget is available in theBank publication entitled "Financial Monitoring Reports: Guidelines to Borrowers".) The annual cashbudget will be sent to the TTL at least two months before the beginning of the project fiscal year byLAMATA. Detailed procedures for planning and budgeting will be documented in the FPM.

13. Fixed Assets and Contracts Registers: Fixed Assets Registers will be maintained, regularly updated andchecked. Contracts Registers will also be maintained for all contracts. Detailed procedures for maintainingthe Registers will be documented in the FPM.

14. Information Systems: A computerized FMS will be designed by a Financial Management Consultant(FMC) for use in LAMATA. The FMC will also install the system, and train the accounting staff to use itbefore the credit becomes effective.

15. Financial Procedures Manual (FPM) The FMC will also develop a FPM for the project. The FPM willinclude, inter alia: institutional arrangements; chart of accounts; basis of accounting adopted; planning and

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budgeting, including cash-flow management; procurement procedures for goods, works and services;disbursements; banking activities; staff, wages and salaries; fixed assets register; financial reporting,auditing; legal covenants; and records management.

16. Financial Reporting and Monitoring: the Finance Director will produce monthly, quarterly and annualreports (as outlined in paragraphs 17-19) and submit to LAMATA management and IDA for the purpose ofmonitoring project implementation.

17. Monthly Reports:* Bank Reconciliation Statement for each bank account* Statement of cash position for project funds from all sources;* Statement of expenditure classified by project components, disbursement categories, and comparison

with budgets, or a variance analysis; and* Statement of Sources and Uses offunds (by Credit Category/ Activity showing IDA, Counterpart

and Transport Funds separately);

18. Quarterly Financial Monitoring Reports (FMR):* Financial Reports which include a statement showing for the period and cumulatively (project life

or year to date) inflows by sources and outflows by main expenditure classifications; opening andclosing cash balances of the project; and supporting schedules comparing actual and plannedexpenditures. The reports will also include cash forecast for the following two quarters.

* Physical Progress Reports which include narrative information and output indicators (agreed duringproject preparation) linking financial information with physical progress, and highlighting issuesthat require attention.

* Procurement Reports, which provide information on the procurement of goods, works, andconsultants, and on compliance with agreed procurement methods. The reports will compareprocurement performance against the plan agreed at negotiations or subsequently updated, andhighlight key procurement issues such as staffing and building borrower capacity.

* SOE withdrawal schedule listing individual withdrawal applications relating to disbursements by theSOE method, by reference number, date and amount; and

* Special account statement/reconciliation showing deposits and replenishments received, paymentssupported by withdrawal applications, interest eamed on the account and the balance at the end ofthe reporting period.

19. Annual Project Financial Statements:* A Statement of Sources and Uses offunds (by Credit Category/by Activity showing IDA,

Counterpart Funds and Transport Funds separately);* A Statement of Cash Position for Project Funds from all sources;* Statements reconciling the balances on the various bank accounts (including IDA Special Account)

to the bank balances shown on the Statement of Sources and Uses of funds* SOE Withdrawal Schedule listing individual withdrawal applications relating to disbursements by

the SOE Method, by reference number, date and amount.* Notes to the Financial Statements.

20. Indicative formats for the reports are outlined in two Bank publications: (a) quarterly FMRs in theFinancial Monitoring Reports: Guidelines to Borrowers, and (b) annual reports in the Financial Accounting,Reporting and Auditing Handbook (FARAH).

Accounting Policies and Procedures

21. Project accounts will be maintained on a accrual basis, augmented with appropriate records and

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procedures to track commitments and to safeguard assets. Accounting records will be maintained in dualcurrencies (i.e. Naira and US$).

22. The Chart of Accounts will facilitate the preparation of relevant monthly, quarterly and annual financialstatements, including information on the following:

* Total project expenditures* Total financial contribution from each financier* Total expenditure on each project component/activity, and* Analysis of that total expenditure into civil works, various categories of goods, training, consultants

and other procurement and disbursement categories

23. Annual financial statements will be prepared in accordance with International Accounting Standards(IASs).

24. All accounting and control procedures will be documented in the FPM, a living document that will beregularly updated by the Director of Finance.

D. Next Steps

Action Plan25. The actions to be implemented before Credit Effectiveness are tabulated below.

Before Credit EffectivenessACTIONS RESPONSIBILITYEstablish the Finance Department in LAMATA LAMATA/LUTPO

Employ Director of Finance, 2 Accountants (Managers) and Support LAMATA/LUTPOStaffEmploy Internal Auditor and Support Staff LAMATA/LUTPO

Computerized FMS installed; FPM developed; and staff trained in the LUTPOoperation of the system.Counterpart Funds arrangements put in place. LASGs, SMOF/LAMATASA Dollar Account, Current (Draw-down) Account in Naira, and Current LUTPO/LAMATA(Project) Account in Naira for counterpart Fund Accounts, and Current(Transport Fund) Account in Naira opened. SMOF and IDA advised ofauthorized bank signatories/specimen signatures.Initial capacity building completed e.g. Special Account, SOEs and LAMATA & IDAcomputer skills.External auditors appointed on approved TORs. IDA/LAMATAiLUTPO

Supervision Plan

26. Supervision activities will include: review of quarterly FMRs; review of annual audited financialstatements and management letter as well as timely follow up of issues arising; annual SOE review;participation in project supervision missions as appropriate; and updating the financial management rating inthe Project Status report (PSR). The FMSs at the Country Office will play a key role in monitoring thetimely implementation of the action plan.

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Conclusion

27. Subject to the activities listed in paragraph 25 being performed satisfactorily prior to crediteffectiveness, the Bank's financial management requirements will be satisfied.

2. Audit Arrangements

A) Internal Audit

28. Project activities will be periodically reviewed by the Internal Audit Unit (IAU) of LAMATA.

29. The Head of the Internal Audit Unit will report to the Managing Director ,and will be responsible for

evaluating the reliability of the accounting systems, data, and financial reports. The unit will carry outperiodic reviews of project activities, records, accounts and systems; ensure effectiveness of financial and

accounting policies and procedures, as well as compliance with internal control mechanisms; review SOEs;

physically verify purchases and assets; and carry out other functions as stated in the TORs.

B) External Audit

30. The IDA Agreement will require the submission of Audited Project Financial Statements for LAMATAto IDA within six months after year-end. Samples of audit reports are included in Annex XXI, FinancialAccounting Reporting and Auditing Handbook (FARAH) of the World Bank.

31. Relevantly qualified, experienced and independent external auditors will be appointed by LAMATA on

TORs acceptable to IDA.

32. Besides expressing an opinion on the Audited Project Financial Statements in compliance with

International Standards on Auditing (ISAs), the auditors will be required to include a separate opinion

paragraph on the accuracy and propriety of expenditures made under the SOE procedures and the extent to

which these can be relied upon as a basis for loan disbursements. Regarding the Special Account, the

auditor will also be expected to form an opinion on the degree of compliance with IDA procedures and the

balance at the year-end.

33. In addition to the audit report, the external auditors will be expected to prepare a Management Letter

giving observations and comments, and providing recommendations for improvements in accountingrecords, systems, controls and compliance with financial covenants in the IDA agreement.

3. Disbursement Arrangements

Allocation of credit proceeds (Table C)The allocation of credit proposals is given in the Table C. This also indicates the financing arrangements

for the different categories of expenditures. Disbursement in categories 1. and 2. - works and goods - IDA

will cover 100 % of the eligible foreign expenditures and 80% of the eligible local expenditures. In

respect of category 3. - consultants and training - IDA will finance 90% of both foreign and localexpenditures.

Table C: Allocation of Credit Proceeds

Expenditure Category . Amount in,US$iin ' 'innin-g rcentaig

1. Works 65.55 100% of foreign expenditure

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80% of local expenditures2. Goods 2.17 100% of foreign expenditures

80% of local expenditures3. Consultants' services, training & 21.78 90%audits4. Unallocated 10.50

Total Project Costs 100.00

Total 100.00

Use of statements of expenditures (SOEs):

LAMATA will use SOE procedures in which expenditures are summarized by category. Thedocumentation for withdrawal of SOEs would be retained by LAMATA for review by IDA staff duringsupervision mission and for annual audits. SOE will be used for payments of contracts less thanUS$500,000 for works, less than US$150,000 for goods, less than US$100,000 for consulting firms andless than US$50,000 for individual consultants. SOEs will likewise be utilized for all small equipment,office supplies and training. Documentation supporting all expenditures claimed against SOEs will beretained by LAMATA, and will be available for review when requested by IDA supervision missions andproject auditors. All disbursements are subject to the conditions of the Development Credit Agreementand the procedures defined in the Disbursement Letter.

Special account:To facilitate project implementation, a Special Account(s) in foreign currency would be established byLAMATA in a commercial bank on terms and conditions acceptable to the Bank. An initial depositsufficient to cover estimated eligible disbursements for the next four months will be deposited in thespecial account. LAMATA will be responsible for submitting monthly replenishment applications withappropriate supporting documents for expenditures. To the extent possible, all of IDA's share ofexpenditures should be paid through the special account. The Special Account will be replenishedthrough the submission of Withdrawal Applications on a monthly basis and will include reconciled bankstatements and other documents as may be required until such time as the borrower may choose toconvert to report-based disbursement. All disbursements will be channeled through the SA. However, inlieu of SA, the borrower may choose to pre-finance project expenditure and seek reimbursement fromIDA.

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Annex 7: Project Processing Schedule

NIGERIA: Lagos Urban Transport Project

Project Schedule Planned :- - Actuale'-.'

Time taken to prepare the project (months) 12

First Bank mission (identification) 05/24/2001 05/24/2001

Appraisal mission departure 04/15/2002 05/08/2001

Negotiations 07/15/2002 07/16/2002

Planned Date of Effectiveness 02/28/2003

Prepared by:Dieter Schelling, George Banjo, Hubert Nove-Josserand, Subhash Seth, Akintola Fatoyinbo, Benjamin

Vannier, Nina Chee, Adenike Sherifat Mustafa, and Bayo Awosemusi

Preparation assistance:Client - Anthony Mobereola, Special Assistant on Transport to the Governor, Lagos State

Consultants - Ian Barett, Bus Operations SpecialistDavid Bovill, Transport EconomistStephen Camp, Traffic EngineerDavid Coughtrie, Railway SpecialistPhil Fouracre, Transport and Poverty SpecialistOkwudilli Ikejiani, Infrastructure EngineerAndrew Miller, Transport PlannerIan Ogilvie, Permanent Way EngineerColin Palmer, Water Transport SpecialistBill Sheridan, Environmental SpecialistSvein Stoveland, Willingness to pay surveyMessrs SNC Lavalin, Road network analysisMessrs UTNILAG Consult, Transport SurveysGordon Appleby, Resettlement Specialist

Bank staff who worked on the project included:Name Speciality

Dieter Schelling Task Team Leader

George Banjo Senior Transport Specialist

Hubert Nove-Josserand Senior Urban Transport Specialist

Scott Sinclair Lead Financial Specialist

Mark Walker Lead Counsel

Karen Hudes Sr. Counsel

Kristine Drike Economist

Nina Chee Environmental Specialist

Subash Seth Highway Engineer

Bayo Awosemusi Procurement Specialist

Adenike Sherifat Mustafa Financial Management Specialist

Melanie Jaya Program Assistant

Jocelyne do Sacramento Language Program Assistant

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Benjamin Vannier Project Assistant

Akintola Fatoyinbo Senior Communications Specialist

Anthony Hegarty Lead Financial Management Specialist

Edward Olowo-Okere Senior Financial Management Specialist

Ntombie Siwale Team Assistant

Clementine du Payrat Project Assistant

Dan Aronson Lead Social Scientist

Ajaj Kumar Consultant

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Annex 8: Documents in the Project File*NIGERIA: Lagos Urban Transport Project

A. Project Implementation Plan

- Draft Project Implementation Plan

B. Bank Staff Assessments

- Identification Mission Aide Memoire, September 2001- Preparatory Mission Aide Memoire, November 2001- Preparatory Study TORs- Pre-appraisal Mission Aide Memoire, March 2002- Appraisal Mission Aide Memoire, April 29 to May 10, 2002.- Financial and Procurement Management Assessment, January 2002- Complete COSTAB Table

C. Other

- Mass Transit and Transport Systems Management Program for Lagos Metropolitan Area, Volumes 1 to4 and Appendices I to 8, 1994- Lagos Urban Transport Project, Final Project Document, 1996- Detailed Framework for the Establishment of LAMATA, 1996- LUTP Review Team, Inception Report, May 2001- LUTP Review Team, Final Report, July 2001

Preparatory Studies

- Sector Background, January 2002-Assessment of the Potential for Water Transport In Lagos, January 2002- Regulatory Framework for Public Transport, January 2002- Concessioning Framework for the Rail Mass Transit, January 2002- Project Description of the Mass Transit Railway, January 2002- Inception Report of the Road and Bridge Maintenance Needs Assessment and Junction ImprovementStudy, December 2001- Interim Report of the Road and Bridge Maintenance Needs Assessment and Junction ImprovementStudy, February 2002- Bus Finance Scheme - various papers- Environmental Assessment, Draft Final Report, March 2002- Economic Analysis of the Rail Mass Transit, March 2002- Cost Recovery Strategy, Draft Report, March 2002- Poverty Assessment of the LUTP, Draft Final Report, February 2002- Willingness to Pay Survey Report, December 2001- Traffic Survey Reports , November 2001 to February 2002- Road Safety Institutional Development, December 2001- Traffic Enforcement Pillars, December 2001- Draft Transport Sector Policy, January 2002- Resttlement Policy Framework, May 2002.*Including electronic files

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Annex 9: Statement of Loans and Credits

NIGERIA: Lagos Urban Transport Project02-Oct-2002

Difference between expectedand actual

Original Amount in US$ Millions disbursements

Project ID FY Purpose IBRD IDA Cancel. Undisb. Orig Frm Revd

P071494 2003 Universal Basic Education Pro*ect 0.00 101.00 0.00 100.78 0.00 0.00

P072018 2002 Nigeria:Transmnssion Develop,oent Project 0.00 100.00 0.00 102.67 8.82 0.00

P070291 2002 HIV/AIDS Response Project 0.00 90.30 0.00 92.75 11.99 0.00

P070290 2002 Health Systems 0.00 127.01 0.00 134.92 0.00 0.00

P069901 2002 Comrunity Based Urban Development 0.00 110.00 0.00 116.51 0.00 0.00

P070293 2001 NG PRIVATIZATION SUPPORT PROJECT 0.00 114.29 0.00 113.92 15.02 0.00

P069086 2001 Comffrunity Based Poverty Reductlon 0.00 60.00 0.00 56.55 8.28 2.28

P066571 2000 SECOND PRIMARY EDUCATION PROJECT 0.00 55.00 0.00 48.19 48.99 0.00

P065301 2000 ECON.MGMT.CAP.BLDG. 0.00 20.00 0.00 11.15 1.03 0.00

P064008 2000 SMALL TOWNS WATER 0.00 5.00 0.00 3.69 -1.07 0.00

Total: 0.00 782.60 0.00 781.12 93.06 2.28

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NIGERIASTATEMENT OF IFC's

Held and Disbursed PortfolioJun 30 - 2002

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

1998 AEF Ansbby 0.10 0.00 0.00 0.00 0.10 0.00 0.00 0.001996/98 AEF Bailey Bridg 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.001996 AEF Courdeau 0.07 0.00 0.00 0.00 0.07 0.00 0.00 0.001997 AEF Ekesons 0.10 0.00 0.00 0.00 0.10 0.00 0.00 0.001999 AEF Global Fabri 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.001999 AEF Hercules 1.30 0.00 0.00 0.00 1.30 0.00 0.00 0.001999 AEF Hygeia 0.29 0.19 0.00 0.00 0.29 0.19 0.00 0.001996 AEF Mid-East 0.00 0.00 0.12 0.00 0.00 0.00 0.12 0.001997 AEF Moorhouse 1.07 0.00 0.00 0.00 1.07 0.00 0.00 0.002000 AEF Oha Motors 0.84 0.00 0.00 0.00 0.84 0.00 0.00 0.001997 AEF Radmed 0.25 0.00 0.00 0.00 0.25 0.00 0.00 0.002001 AEF SafetyCenter 0.50 0.00 0.00 0.00 0.00 0.00 0.00 0.001997 AEF Telipoint 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.001995 AEF Vinfesen 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.001994 Abuja Intl 1.75 0.71 0.00 0.00 1.75 0.71 0.00 0.001964/66/89 Arewa Textiles 0.00 0.12 0.00 0.00 0.00 0.12 0.00 0.002000 CAPE FUND 0.00 7.50 0.00 0.00 0.00 3.75 0.00 0.002000 Citibank (Nig) 39.20 0.00 0.00 0.00 9.20 0.00 0.00 0.002001 Delta Contractor 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002000 Diamond Bank 0.00 0.00 18.00 0.00 0.00 0.00 18.00 0.002000 FSB 4.50 0.00 18.00 0.00 0.00 0.00 18.00 0.001992 FSDH 0.00 0.86 0.00 0.00 0.00 0.86 0.00 0.002000 GTB 20.00 0.00 0.00 0.00 5.00 0.00 0.00 0.002000 IBTC 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.001981/85/88 Ikeja Hotel 0.00 0.25 0.00 0.00 0.00 0.25 0.00 0.001993 Tourist Co Nir 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002001 UBA 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Portfolio: 136.69 9.63 36.12 0.00 41.69 5.88 36.12 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic2000 AEF SafetyCenter 0.00 0.00 0.08 0.002002 MTNN 75.00 0.00 25.00 0.002002 NTEF- SCB 20.00 0.00 0.00 0.002001 FCMB 10.00 0.00 0.00 0.002001 Novotel Hotel 2.50 1.50 0.00 0.002001 Citibank/lFC JV 30.00 0.00 0.00 0.002002 NTEF - ANZ 10.00 0.00 0.00 0.00

Total Pending Commitment: 147.50 1.50 25.08 0.00

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Annex 10: Country at a Glance

NIGERIA: Lagos Urban Transport ProjectSub-

POVERTY and SOCIAL Saharan Low-Nigeria Africa Income Development dlamond'

2001Population, mid-year (millions) 129.9 674 2,511 Life expectancyGNI per capita (AUas method, US$) 290 470 430

GNI (Atlas method, US$ billions) 37.1 317 1,069

Average annual growth, 1995-01

Populaton (%) 2.6 2.5 1.9Labor force (9%) 2.7 2.6 2.3 GNI * . Gross

per primaryMost recent estimate (latest year available, 199501) capita .' enrollment

Poverty (% of population below national poverty line)Urban population (% of total population) 45 32 31Life expectancy at birth (years) 47 47 59Infant mortality (per 1,000 live births) 84 91 76Child malnutrition (% of children under 5) 27 .. .. Access to improved water source

Access to an improved water source (% of population) 57 55 76Illiteracy (% of population age 15+) 35 37 37Gross primary enrollment (%of school-age population) 82 78 96 Nigarla

Male 89 85 103 Low-income group

Female 74 72 88

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1981 1991 2000 2001Economic ratlos*

GDP (US$ billions) 59.9 27.3 41.1 41.2

Gross domesUc lnvestmenVGDP . 23.4 22.7 27.6Exports of goods and services/GDP 22.5 37.2 52.3 48.3 Trade

Gross domestic savings/GDP 19.2 29.3 34.0 26.9Gross natonal savings/GDP 16.1 20.5 27.6 23.6

Current account balance/GDP -10.1 -3.6 4.8 0.0 Domestic ivte

Interest payments/GDP 1.1 7.5 5.0 s. i , Igvestt

Total debt/GDP 19.1 122.8 83.1 77.9 savngsTotal debt service/exports 9.1 23.4 15.5 20.4Present value of debVGDP .. 66.2Present value of debt/exports . .. 125.4

Indebtedness1981-91 1991-01 2000 2001 2001-05

(average annual growth)GDP 3.3 2.4 3.8 3.9 3.4 Nigeria

GDPpercapita 0.3 -0.3 1.3 1.5 1.2 -- Low-income group

Exports of goods and services 3.1 3.7 -1.6 5.6 2.8

STRUCTURE of the ECONOMY1981 1991 2000 2001 Growth of lnvestment and GDP (%)

(% of GDP)Agricuiture 26.9 30.4 29.5Industry 37.6 45.6 46.0 .. 40

Manufacturing 9.2 5.9 4.1 .. 20

Services 35.5 24.0 24.5 .

Private consumption 67.9 58.5 45.5 47.9 -20 - 97 98 99 DO 0

General govemment consumpton 12.9 12.2 20.5 25.2 - GDI 0 GDP

Imports of goods and services 26.6 31.3 41.1 49.0

1981-91 199141 2000 2001 Growth of exports and Imports (%)

(avenage annual growth)Agriculture 4.6 3.8 5.2 5.1 30

Industry 0.9 0.9 6.7 1.4Manufacturing 1.6 1.2 4.9 4.2 is

Services 5.1 2.6 -0.3 5.1 o - i ~Private consumption -2.5 9.1 -17.9 0.6 sr 95 01

General govemment consumpton -3.2 10.7 86.2 14.7 .15

Gross domestc Investment -3.8 8.2 39.7 18.5 Exports * Imporls

Imports of goods and services -12.2 6.1 16.0 18.9

Note: 2001 data are preliminary esamates.* The diamonds show tour key indicators in the country (in bold) compared vith its income-group average, if data are missing, the diamond will be incomplete.

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Nigeria

PRICES and GOVERNMENT FINANCE1981 1991 2000 2001 Inflation (%)

Domestic prices(% change) 80

Consumer prices 20.8 13.0 6.9 18.9 roImplicit GDP deflator 16.2 20.2 25.4 6.0 40

Government finance 20(% of GDP, includes current grants) 0 ,Current revenue .. 17.7 46.1 47.5 -20 96 97 98 99 00 01

Current budget balance 6.2 0.7 24.0 19.8 - GOP deflator * CPIOverall surplus/deficit .. .. 2.4 -3.0

TRADE1981 1991 2000 2001 Export and Import levels (US$ mill.)

(US$ millions)Total exports (fob) 17,718 12,127 20,441 18,700 25,000

Fuel 17,162 11,665 19,550 17,621Liquified natural gas .. .. 623 735Manufactures .. 85 30 45 15,00

Total imports (cif) 22,013 8,736 13,718 15,544 10.000Food 3,604 760 1,761 2,044Fuel and energy 301 44 178 197 5,000

Capital goods .. .. .. .. 095 96 97 99 99 00 01

Export price index (1995=100) 219 117 160 146Import price index (1995=100) 66 86 95 99 U Exports O ImportsTerms of trade (1995=100) 332 136 169 147

BALANCE of PAYMENTS1981 1991 2000 2001 Current account balance to GDP (%)

(US$ millions)Exports of goods and services 18,511 12,324 21,409 19,694 20

Imports of goods and services 21,839 10,376 16,813 18,327Resource balance -3,327 1,948 4,596 1,367 10

Net income -2,147 -2,978 -4,343 -3,155Net current transfers .. 50 1,724 1,803 o

Current account balance -6,042 -980 1,977 15 -1.

Financing items (net) -158 1,267 1,982 1,008Changes in net reserves 6,200 -287 -3,959 -1,023 -20 -

Memo:Reserves including gold (USS millions) 3,923 4,150 9,400 10,423Conversion rate (DEC, localiUS$) 0.8 12.0 101.7 111.6

EXTERNAL DEBT and RESOURCE FLOWS1981 1991 2000 2001

(US$ millions) ComposItion of 2001 debt (USS mill.)Total debt outstanding and disbursed 11,421 33,528 34,134 32,130

IBRD 562 3,297 1,625 1,337 G: 1.440 A: 1.337IDA 37 59 644 621 B: 621

Total debt service 1,789 2,945 3,362 4,082 F: .5.8 ;IBRD 72 582 376 285IDA 1 1 9 13 , ,;_ D: 8,373

Compositlon of net resource flowsOfficial grants .. .. .. ..

Ofricial creditors 87 43Private creditors 1,715 -120Foreign direct Investment .. 588 1,374 1,800Portfolio equity 0 0 0 0 E: 14,480

World Bank programCommitments 388 566 140 305 A -IBRO E -BilateralDisbursements 74 255 86 27 B - IDA 0 -Other mulblateral F -PrivatePrincipal repayments 29 276 277 215 C- IMF G -Short-term

Net flows 45 -21 -191 -188Interest payments 44 308 108 83Net transfers 2 -329 -299 -271

ueveiopmenlt tconomics 9/1 i,/U;

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Additional Annex 11: Letter of Sector Policy and StrategyNIGERIA: Lagos Urban Transport Project

1. Introduction

This statement sets out the action plan by which. the Government of Lagos State intends to

implement its policies for the development of the transport system in the Lagos metropolitan

area. It re-affirms and updates the Transport Sector Policy Statement originally drafted in 1996

and revised in 2001 to take into account current thinking on the regulation of competition in the

passenger transport industry. It is consistent with framework papers with regard to regulation of

public transport, traffic enforcement and the concessioning of the rail mass transit earlier

discussed with the World Bank.

2. Policy Thrust

The challenge facing the administration of the State is to develop and implement a series of clear,

holistic and transparent policies that, implemented in a programmatic way, will lead to the

creation of a modem integrated transport system for metropolitan Lagos. In developing and

implementing such policies, the Government has identified the following key strategies:

> Create an organisational and institutional capacity for the planning and management of

the State's transport system=> Raise the level of cost recovery in the transport sector=> Promote affordable public transport services=> Reduce adverse external impacts of transport, and provide safeguards=> Create a conducive environment for the private sector provision of transport services

=> Make the best use of existing transport capacity

In developing and implementing such policies, the Government sees the need to address the

following key issues:

1. Policy and Institutional Reform2. Rail Mass Transit Development3. Bus Services Enhancement4. Road Network Efficiency Improvements5. Water and Non-Motorised Transport Promotion

Accordingly, the Government has designed the Lagos Urban Transport Project (LUTP) as the

primary instrument to address these issues. LUTP is the first phase of a programme designed to

promote effective and efficient transport in Lagos, which will be implemented in phases over the

coming decades. The Lagos State Government (LSG) has already acted to start to implement this

program and now seeks the assistance of the private sector and the international development

community in its implementation. The progress of the implementation of the LUTP will be

measured as per the Annex I to this policy.

3. Policy and Institutional Reform

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LSG recognises that the organisational and institutional capacity required to address thetransportation problems of metropolitan Lagos effectively can only be provided if primaryresponsibility for the sector is transferred to a single autonomous entity. Accordingly it has actedto create the Lagos Metropolitan Area Transport Authority (LAMATA), with the enablinglegislation having been passed by the Lagos State House of Assembly in 2001 and signed intolaw by HE The Governor on 13 January 2002.

Cost recovery in the transport sector is currently very low, an estimated 11%. It is therefore theobjective of government to raise the level of cost recovery through increases in existing user feesand by introducing new ones such that over the next decade, the sector becomes self-sustaining.In achieving this objective, care will be taken to avoid undesirable impact on the poor. It isexpected that this strategy will also contribute to the achievement of demand managementobjectives, especially into Lagos Island.

A dedicated Transport Fund (TF) has been established within the law establishing LAMATA.All revenues from designated user charges will be directly transferred from source into theaccount of the Fund and used by LAMATA in the performance of its duties. Starting 2003, atleast the motor vehicle taxes collected will be transferred directly into the TF. It is expected thatthe TF will cover the operating cost of LAMATA, as well as covering all of the routine andrecurrent maintenance needs of the designated road network by 2004. Thereafter, increases inrates and the introduction of new charges will progressively fund rehabilitation works and trafficsystem management measures.

The establishment of LAMATA, and the exercise of its powers, will have a direct impact on anumber of existing transport sector agencies and their future roles. LSG will act to review thetransport sector institutional set up in view of the LAMATA bill and will prepare a sectorrestructuring plan, not later than by the end of 2004. LSG will also seek formal authority fromthe Federal Ministry of Works and Housing (FMWH) for LAMATA to maintain about 276kilometres of Federal roads in the State, and to raise charges for that purpose.

To ensure that this sector policy is implemented effectively at the Local Government level, LSGis assisting LGA to establish Traffic Management Units (TMUs) in key Local Government Areas(LGAs). Priority is being given to the LGAs of Agege, Alimosho, Apapa, Ikeja, Lagos Island,Kosofe, Mainland, Mushin, Oshodi - Isolo, and Somolu. Proposals will be developed andimplementation plans prepared, and budgets established for their operation by the third quarter of2003 with a view to their becoming active by the end of 2003.

In order to evolve a strategic plan for responding to transport needs as they are identified, and todirect sector investment in the most effective manner, LAMATA will commission a detailedstudy for a Transport Master Plan. Based on the findings of this study, a comprehensive policyand strategy will be developed by the State to guide future investments in the transport sector.This comprehensive policy is expected to be approved by the end of 2004.

4. Rail Mass Transit Development

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LSG has identified the opportunity to develop a mass-transit railway, capable of carrying some

30,000 passengers per hour and direction, as a key element in providing additional passengertransport capacity in the metropolitan area. The first phase of this railway would be constructed

in the Nigerian Railways Corporation (NRC) corridor between Agege and Iddo, both because of

the available space in the existing right-of-way and its positioning in the heart of the highest

identified travel demand path. Potential future extensions of the railway would run to the north

(Agbado), the southeast (Lagos Island and beyond), and the west (beyond Festac) once the

technical and commercial viability of the first phase has been demonstrated.

LSG has entered into negotiations with FMT and NRC for the right to use the eastern half of the

corridor north of Ebute Metta Junction and the entire corridor to the south. LSG would seek

financing for the relaying of NRC track and a passing-loop in the western half of the corridor,

and for the construction of grade-separated road crossings along its length. A Memorandum of

Understanding for that purpose is under discussion with the FMT and NRC .

LAMATA will prepare a detailed plan of works for securing the boundaries of the NRC

right-of-way and removing encroachments, including proposals for needed

resettlement/compensation and any land acquisition found to be necessary. LSG has already

commissioned a topographical survey of the corridor, and its immediate surroundings, in order to

provide the basis for this work.

LSG will seek to involve the private sector in the development of the railway from the earliest

practicable stage. This business opportunity will be made available to any interested investor

with the proven capacity to undertake the task, and a short list of these will be identified for

detailed negotiation and competitive tender as appropriate.

It is anticipated that the selected concessionaire for the railway will undertake the detailed design

of the fixed infrastructure as well as the specification of the rolling stock. The cost of this

exercise will be included in the concession price, if the investor is prepared to undertake both theconstruction and fumding risks. Should it not be possible to identify such a partner, LSG will seek

financial assistance from its developmental partners.

5. Bus Services Enhancement

The primary contributor to personal mobility in the Lagos metropolitan area is the network of

private bus services provided by molues (midibuses) and danfos (minibuses). However these

services are of low quality and safety, and their operating behaviour is a significant contributor to

traffic congestion and public dissatisfaction. In order to build on the proven success of bus

services in meeting the travel needs of the population, whilst acting to reduce their harmful

external impacts, LSG will act to regulate the industry in accordance with the framework worked

out during preparation of LUTP. It will also invest in the necessary infrastructure to support

efficient operations, and will provide support to investors prepared to modemise their fleets.

LAMATA will establish a framework for the franchising of public transport services over the

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core network of routes in the metropolitan area over the period 2003-2006. Exclusive franchisesfor the right to operate these routes to a defined specification will be made available through aprocess of open competitive bidding to groups of operators formed into legal entities. Criteria forthe award of the franchises will incorporate incentives to invest in larger and less polluting buses,and will act to raise the quality of the urban fleet over time. Peripheral routes will retain thederegulated regime that has been effective in offering services to new areas of urbandevelopment, but these will be consolidated into the core network as per demand. As a first stepLAMATA will establish the route licensing system to be on a time-limited basis. LAMATA willnotify such change prior to the implementation of the intended Bus Demonstration Project.

In order to support private-sector investors wishing to avail of the business opportunity presentedby the introduction of an orderly market for passenger transport services, LSG is prepared tounderwrite some of the risks involved. LSG recognises the lack of capital and collateral availableto most operators when they seek to make a deposit for vehicle finance, so it will act to providealternative security to the financiers in the event of repayment default. It is proposed tocommence the implementation of the above policy through a pilot scheme along a limitednumber of routes to prove its viability.

One of the expected outputs of the transport master plan for Lagos is the public transport routenetwork for the metropolis for both main and feeder services. The basic framework for theoperation of the network will also be defined including the key reforms needed to upgrade theoverall quality of service provided by the public transport system.

6. Road Network Efficiency Improvements

LSG has defined a priority road network of a total length of 632 kilometers. This networkincludes federal, state and local government roads and represents the vital network of main roadswhich is essential for the provision of bus services. The management of these network has beendelegated to LAMATA and is called the "declared" network. The objective of LSG is to bringthe entire declared road network to good condition as soon as possible and thereafter keep it ingood condition. The efficiency of all major intersection on this network is be improved throughtraffic system management measures. The extent of declared network and its appropriateness willbe reviewed from time to time and adjusted accordingly.

To support the process of managing, developing and maintaining the road network inmetropolitan Lagos, LAMATA will establish a Road and Bridge Management System(incorporating a Pavement Management System) and a Geographical Information System (GIS).The Road Maintenance and Traffic Management Department within LAMATA will be chargedwith making effective use of these systems and to assist other road agencies to make use of thesesystems.

LSG also recognises the need to raise the functionality of the road network and this is proposedto be done through the use of Traffic Systems Management measures along major road corridors.These will include public-transport priority measures where these are feasible. A programme forthe development of passenger interchanges will also be designed, including proposals for any

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needed resettlementlcompensation. Wherever possible, infrastructure investments will be timedto coincide with fleet renewal on the affected routes. At the local level, priority will be given toLagos Island and Ikeja LGAs in recognition of their importance to the commercial andadministrative capacity of the State. A Traffic Master Plan for Lagos Island was prepared in1996, and this will now be updated to reflect developments since that time. From this, priorityactions will be identified, detailed designs prepared, and works commissioned as appropriate. Asimilar process will be followed in Ikeja, starting with a traffic problem identification study ofthe area. For Lagos Island, the detailed designs are expected to be ready by June 2003 whilst thatfor Ikeja will be ready by the third quarter of 2003. The State will take care to ensure thatsafeguards issues are appropriately taken into account in the above exercises.

LSG will also endeavor to involve the private sector in road financing and management throughso-called build operate and transfer (BOT) and similar arrangements. Furthermore, LSG willimplement performance based maintenance contracts when feasible and appropriate.

7. Water and Non-Motorised Transport Promotion

LSG recognises that those of its citizens unable to use road transport services, whether throughaccess or affordability, are significantly disadvantaged and have been relatively neglected in thetransport planning process. The inland waterways of the State represent an under-utilisedtransport resource, but also the only route of communication available to some communities.

The level of operability of the large-capacity ferries in the State (both State and Federal owned) islow and the limited service offer is irregular and very slow. LSG will seek to privatise the LagosState Ferry Corporation (LSFC) or, if this proves not to be possible, will dispose of its operatingassets to the private sector. LSG will commission a study into the feasibility of developing ferryservices in the metropolitan area, and will develop this into a detailed strategic plan. LAMATAwill respond to any sound proposals from intending operators, through improving or constructinglanding stages and improving their land access as requested. The needs of informal operators willbe given particular attention since they provide much of the water transport services used by thepoor. Likewise the use of the waterways for freight movement which thus serve as a significantrelieve to road transport. LSG will enter into negotiations with FMT to regularise the access to,and maintenance of the landing facilities of the Federal agency, Nigerian Inland WaterwaysAuthority (NIWA).

Pedestrians are the principal victims of the low level of road safety, and road users or markettraders have taken over many of the facilities previously provided for them. Due consideration ofpedestrians' needs will be incorporated in all road rehabilitation and traffic systems managementschemes developed by LAMATA, with particular emphasis on grade-separated crossings ofprimary roads. Guidelines for the audit of transport interventions are being prepared for thispurpose . The Lagos Island Traffic Master Plan already makes full recognition of pedestrianissues, and has proposed the complete pedestrianisation of certain areas; Lagos Island LGA willincorporate these measures in its development plan. The Ikeja traffic problem identification studywill be required to design a secure network of pedestrian routes in the area, and will investigatethe technical and cultural feasibility of introducing cycle-ways. Lessons learned will

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progressively be implemented across the metropolitan area.

8. Safeguarding the Public Interest

LSG recognises that the transport system of the metropolitan area is for the benefit of all itscitizens, and will act to protect their collective interests. LAMATA will establish a unitresponsible for safeguard assessment, with a particular emphasis on pedestrian safety and socialand environmental impacts. This unit will ensure that all transport investments on the networkmanaged by LAMATA will conform to appropriate environmental and safety standards. Allworks carried out will be guided by the Environmental Management Framework and theresettlement policy framework which have been prepared. Furthermore, LAMATA will preparefor the sector as a whole an Environmental Assessment and Social Assessment Framework earlyin its establishment and on the bases of this framework prepare resettlement management plansfor each activity where resettlement is required under the LUTP. Public consultation processeswill be done whenever required. LAMATA will have an External Relations Unit whose functionswill include ensuring that LAMATA has a good image amount stakeholders, especially the civilsociety. This Unit will also be responsible for articulation and implementation of a detailedInformation, Education and Communication strategy which is expected to facilitate the publicacceptability of LAMATA and its actions.

9. Enforcement

LSG also recognises that many failures of previous development initiatives in the transport sectorcan be attributed to the lack of enforcement of regulations, and corruption of the regulatoryprocess. LSG will transfer the ultimate responsibility for ensuring implementation of good trafficenforcement systems to LAMATA. One of LAMATA's strategies for discharging thisresponsibility is that of facilitating the enhancement of the traffic police's discharge of theirfunctions in this regard. The effectiveness of traffic enforcement will be further enhancedthrough the development of a strategic plan for the rationalization of existing approaches and thedevelopment and application of modern traffic enforcement tools. Oversight of these activitieswill be by LAMATA through its traffic laws enforcement unit. In this regard, a study to revampmotor vehicle administration in the state, including the integration of LASTMA into emergingproposals, will be started by the second quarter of 2003 with its recommendations used as inputto the development of the cost recovery strategy and the making of decisions on, for example,methods and procedures for the collection of user charges.

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PROJECT MONITORING FRAMEWORK

No. Key Indicators 2002 2003 2004 2005 2006 2007Baseline 12/31 12/31 12/31 12/31 12/31

OutconuInyact IndicatorsI Time spent by poor Icusellds on transpot activities *2 Moray speniby poor Icsehdds ontnmspozt activities *

3 Nunt er of acciderds irolvirg pedestrians *4 zison-days oflab or created by works pgram 450.000 550P)00 650,00 7?00,00 00,000

Oliput IndietorsCapaci4' Ralding

5 LAMATA fiilly fmctioral with all intenmal procedural rnamals established e6 TotalfinancialconbutionbyLSG(budgetandusercbamesin$mequivalent) 4.3 7 7 7 7 77 % ofLAMATA 's operatir costsofib overall experditure c5% c5% <5% c5°% ee5%8 %of add. roaduserclarmes oftotal LSG cozTnbutiondirectlytransfeznd to T7 0% 20% 40% 60% _80% 100%9 EstabElishmentof TMUs in LGA 4 2 2 ___

10 Max.ntiwe gbetweenissuizg LOI/advertisementardsignizrofcondracts (mnvstl) 3 3 3 3 3 311 Max-. tir for.paymertofinroices (nuntts). 1 1 1 1 1 1

1badNebtwcrkEffency Anprovgments12 Roads rehabilitated (km) 25 19 0 0 013 Oveaerplaced (krn) 62 40 28 14 1214 Total delays (of people) atnajorjunctions (Ikus) *

Bhs Services fhcmcement15 Size ofthe frn hised bus netwo*A as pesertage of the cremtwork -. 22,000 20% 50% 100% 100%16 Pnductivityofpilotbus operation(cwtfpas.-krnin $3 0.04 0.02 OD2 0.02 0.02 0.0217 Avenage passengertravel time on tle pilotbuses compred with coastersldarfos - -2 rnn -2smn -2 inu -2 nmn -2 nu

Water Transport Promotfon,18 InprovemztkJonsutmction ofj etties fr S mall b oat 25 2519 P±ivatization (or s ale) of state owned fenies e20 First erny coces sion opemtwinial

Prepcirabcn of Fbtre Phczes21 Tras port Master Plan oemted ina partcipatow mmner and disclosed e22 Tra. prt SectorImstitltiomal Refmin Plau presajod as no. 21 above e23 Concessionagreementeforrmss transitoperatorirt iAgege toIddocoridorsiged e

* Baseline data to be collected before end of 2002 >

Additional Annex 12:Summary of Environmental Management FrameworkNIGERIA: Lagos Urban Transport Project

1. Introduction

The Lagos State Government (LSG) has developed a long-term policy and strategy for the developmentof the transport sector in Lagos State. This policy and strategy is to be implemented in several phasesover the coming decades. LSG has requested the support of the World Bank to implement the first phaseof the transport policy and strategy, called Lagos Urban Transport Project (LUTP). LUTP focuses onbuilding up the capacity of the transport sector focal entity called Lagos Metropolitan Area TransportAuthority (LAMATA), which was created by law on January 13, 2002. LUTP will furthermoreimplement maintenance and rehabilitation work on some of the main road network in Lagos metropolitanarea (633 km), will introduce Traffic Systems Management (TSM) measures on the same network and intwo central areas, and will take action to promote bus and water transport services. LUTP will alsoinclude preparatory activities for the next phase of the implementation of the transport sector policy andstrategy. Therefore, the project will consist of five components: (i) capacity building; (ii) road networkefficiency improvement; (iii) bus services enhancement; (iv) water transport promotion; and (v)preparation of follow-on phases.

The project has been defined by the World Bank as Category B, which requires 'more limitedenvironmnental analysis ...... as the project may have specific environmnental impacts'. Preliminary designand cost estimates of maintenance and rehabilitation works, as well as TSM measures on the affectedportion of the 633 kilometres of main road network have been prepared. During appraisal, a selection ofworks for a first year program costing about US$30 million was made. The works selected will be withinexisting right of ways focusing on improving safety and network efficiency. These first year works willexclude any that would trigger resettlement action. Detailed design and tender documents have beenprepared for the selected road links, and procurement will conmnence in such a way that works can belaunched as soon as possible after effectiveness of the project (planned by end February 2003) . Toguide the preparation of the second and subsequent year work programs, a resettlement policy framework(RPF) has being developed and this will be used to prepare resettlement action plans (RAP) duringproject implementation for proposed works for which resettlement action is triggered. Most of the worksrequiring resettlement will be executed in a follow-on phase to this project which is being prepared aspart of the LUTP (particularly those related to the development of rail mass transit). However secondyear and subsequent road works programs of LUTP might require temporary or permanent relocation oftraders that have established themselves within the right of way of streets. Within six months ofcommencement of the project, a detailed sectoral environmental and social assessment (EA/SA) will beprepared to provide a strategic approach and plan to the addressing of safeguards issues in the sector.This sectoral EA/SA will be disclosed after approval by the relevant Nigerian agencies and the Bank.

This report presents an environmental management framework (EMF) for addressing the environmentaland social issues generated by the proposed project. The report includes:

- an environmental/social assessment overview;- an environmental/social assessment of the road network efficiency improvement component;- Terms of References (ToRs) for the establishment and functioning of an environmental and socialmanagement unit at LAMATA;- ToR for a detailed sectoral environmental/social assessment.

This document was approved by the Bank and was disclosed on May 7, 2002 based on the Government's

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policy on in-country disclosure. The disclosure process included stakeholder participation, the findingsof which, together with comments of independent review experts, was incorporated into the final

document,

2. The Existing Physical and Institutional Environment

The population of Lagos has been estimated to be approximately 14 million growing at an annual rate of

almost 6%. The rate of population growth in Lagos coupled with ongoing weak economic conditions hasresulted in extensive informal development across the city over the last decade. The average population

density within Lagos metropolitan area is approximately 2,400 persons per km2, with peak levels in some

districts in excess of 15,000 persons per km2. Correspondingly, the poverty level has increaseddramatically over the last 20 years, in Lagos State increasing from 26% in 1980 to 53% in 1996.

There is little quantitative data currently available which describes existing or recent environmental or

social conditions. Previous reports and recent consultations with the relevant agencies indicate that

environmental and social conditions in Lagos are characterized principally by:

- water pollution from sewage disposal and agricultural run-off;- air pollution from road traffic exhaust emissions, domestic wood burning and industrial activities;- noise from road traffic;- traffic congestion due to lack of reliable public transport alternatives and poor traffic management;- access difficulties for pedestrians due to lack of pedestrian facilities; and- health and safety risks from traffic exhaust emissions and lack of road crossing facilities.

Road traffic congestion is severe across many parts of the network. Factors contributing to this includeabsence of alternatives to road travel, lack of comfortable and reliable bus services, encroachment of

market trading activities onto the road, lack of enforcement of parking controls, lack of adequate road

traffic management systems, and poor road surface conditions.

The policy, legislative and institutional framework which is responsible for the environment of Lagos

includes institutions at federal and state level. The Federal Ministry of the Environment (FME), The

Lagos State Ministry of Environment and Physical Planning (MEPP) and the Lagos State EnvironmentalProtection Agency (LASEPA) - a parastatal agency of MEPP - are the key actors in environmentalpollution control in Lagos. LASEPA is responsible for the setting, monitoring and enforcement of

standards and guidelines on vehicular emissions. It is also responsible for monitoring pollution levels in

surface and groundwater, and in the ground.

The Ministry of Women's Affairs and Poverty Alleviation is the apex body within Lagos State havingpoverty alleviation within its remnit. Legislative controls currently in place at the Federal and State level

provide a sound basis for pollution control, but are ineffective largely due to lack of financial resources

for enforcement. Overlap exists between Federal and State laws which allows non-compliance to be

pursued simultaneously by Federal and State authorities. Polluters may be successfully prosecuted andfined for the same offence by both regulatory levels. In certain instances, different regulatoryenvironmental standards have been established by Federal and State agencies.

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3. Environmental Impacts and Opportunities

The environmental impacts are expected to be light. All road activities are within the right of way ofexisting roads and include maintenance and repair works such as repair of traffic signs, street lighting,road fumiture, road surface, and repair of bridges, cleaning of drainage structures, etc. Someresettlement action might be triggered starting from the second year of the project, due to the need fortemporary or permanent relocation of street traders who currently trade within the right of way of roads.

On the other hand, the project presents important opportunities to reduce the environmental impacts ofthe traffic system and to enhance the urban environment by the establishment of LAMATA and theproposed creation of a Safeguards Unit within the organization.

The creation of LAMATA presents the opportunity to:

- establish an environmental policy for the transportation system in the Lagos metropolitan area;- develop short and medium term strategic objectives and indicators for improvements in theenvironment;- design and implement a system for monitoring environmental performance against these objectives;- report on its performance, and make recommendations for continual improvement, including its policyand objectives;- develop working arrangements to co-ordinate and liase with MEPP and LASEPA on how proposedfuture transport investments will interact with land use planning.

The project will provide an opportunity to create a permanent improvement in living and tradingconditions through improved air quality, safety and reduced noise and severance. Wider benefits of theproject for the Lagos metropolitan area will include:

- a more efficient and effective institutional capacity to regulate and improve environmental conditions;- harmonization of the legal and regulatory framework on environmental pollution;- an improvement in air quality, especially in terms of particulates, lead, nitrogen dioxide, benzene andcarbon monoxide;- reduced journey times in certain corridors;- socio-economic benefits through more affordable travel, opening up new employment opportunities;- improved road surface conditions, reducing hazards and damage to vehicles; and- improved arrangements for the collection and disposal of domestic waste.

4. Environmental and Social Safeguards of the Project

In order to respect the World Bank's safeguard policies the project will adhere to the following sequenceof safeguard actions:

(a) establishment of a Safeguards Unit within LAMATA is a condition of effectiveness. The SafeguardUnit will consist of a qualified social scientist and an environmental specialist. Technical Assistance(TA) will be provided for the production of procedures manuals for the safeguards unit (TOR forsafeguards specialists and TA are found in the annex to the EMF report). Furthermore, the TA will assist(in lieu of the Safeguards Unit which is being created) to review the first year road works designs forappropriate environmental mitigation measures (these works will exclude any resettlement action).Establishment of the Safeguards Unit and appropriate procedural manuals will be done beforecommencement of implementation of the project. During project implementation, additional technical

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assistance will be provided to the Unit as required.(b) A resettlement policy framework (RPF) was developed and disclosed in-country and the Bank's

infoshop in June 2002. It will be used to prepare resettlement action plans where needed.

(c) Within the first six months of the execution of the project, a detailed sectoral environmental and

social assessment (EA/SA) will be prepared; Disclosure of this EA/SA as per BP 17.50 will be a

condition for the approval of the second and following year works tranches.(d) Based on the EA/SA and the RPF, the Safeguards Unit of LAMATA will prepare for LASEPA and/or

FME the environmental and, if triggered, resettlement action plans related to the second and subsequent

years works.(e) The Safeguards Unit will also contribute to the transport master planning process, to the selection of

priority investments , and will prepare the environmental thinking and documentation of future projects

under LAMATA.

6. Disclosure at the Bank's Infoshop and in NigeriaThe EMF and the RPF were disclosed in accordance with the Bank's disclosure policy (BP 17.50) both at

the Bank's Infoshop and in Nigeria.

In Nigeria the EMF was disclosed in accordance with the public review process of the Federal Ministry

of Environment (FME). The required notice of the project and availability of the EMF for public review

was advertised in relevant newspapers in the locality of the project on May 7, 2002. In addition, the EMF

was reviewed by experts nominated by the FME. A Stakeholder workshop will be held in Lagos on

November 18, 2002, where these reviews of experts will be discussed publicly. Relevant stakeholders

and the public will be invited to the workshop including representatives of local governments affected by

the project. At the workshop, the reviewers will present their findings and others will make their

contributions. A report reflecting the outcome of the workshop including any recommended

modifications to the EMF and the RPF will be compiled and submitted to the FME for consideration.

Approval of the final EMF and RPF will be based on reflection of the agreed modifications in the draft.

- 77 -

- 78 -

Legal DepartmentCONFIDENTIAL DRAFTOctober 10, 2002

CREDIT NUMBER__

Project Agreement

(Lagos Urban Transport Project)

between

INTERNATIONAL DEVELOPMENT ASSOCIATION

and

LAGOS STATE

Dated , 2002

CREDIT NUMBER__

PROJECT AGREEMENT

AGREEMENT, dated , 2002, betweenINTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and LAGOSSTATE (Lagos).

WHEREAS (A) by the Development Credit Agreement of even date herewithbetween Federal Republic of Nigeria (the Borrower) and the Association, the Associationhas agreed to make available to the Borrower an amount in various currencies equivalentto seventy five million five hundred thousand Special Drawing Rights (SDR 75,500,000),on the terms and conditions set forth in the Development Credit Agreement, but only oncondition that Lagos agree to undertake such obligations toward the Association as areset forth in this Agreement;

(B) by a first subsidiary loan agreement to be entered into between theBorrower and Lagos, the proceeds of the credit provided for under the DevelopmentCredit Agreement will be made available to Lagos on the terms and conditions set forthin said First Subsidiary Loan Agreement;

(C) by a second subsidiary loan agreement to be entered into between Lagosand Lagos Metropolitan Area Transport Authority (LAMATA) the proceeds of the creditprovided for under the Development Credit Agreement will be made available to Lagoson the terms and conditions set forth in said Second Subsidiary Loan Agreement;

WHEREAS LAGOS, in consideration of the Association's entering into theDevelopment Credit Agreement with the Borrower, has agreed to undertake theobligations set forth in this Agreement;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTICLE I

Definitions

Section 1.01. Unless the context otherwise requires, the several terms defined inthe Development Credit Agreement, the Preamble to this Agreement and in the GeneralConditions (as so defined) have the respective meanings therein set forth.

- 2 -

ARTICLE II

Execution of the Project

Section 2.01. (a) Lagos declares its commitment to the objectives of the Projectas set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shallcarry out the Project through LAMATA with due diligence and efficiency and in

conformity with appropriate administrative, financial, engineering and transportationpractices, and shall provide, or cause to be provided, promptly as needed, the funds,facilities, services and other resources required for the Project.

(b) Without limitation upon the provisions of paragraph (a) of this Sectionand except as Lagos and the Association shall otherwise agree, Lagos shall ensure thatthe Project is carried out in accordance with the LAMATA Project Agreement and theImplementation Program set forth in Schedule 4 to the Development Credit Agreement.

(c) Lagos shall make the proceeds of the First Subsidiary Loan Agreementavailable to LAMATA under a second subsidiary loan agreement to be entered intobetween Lagos and LAMATA, under terms and conditions which shall have been

approved by the Association.

(d) Lagos shall exercise its rights under the Second Subsidiary Loan Agreementin such manner as to protect the interests of Lagos and the Association and to accomplishthe purposes of the Credit and, except as the Association shall otherwise agree, Lagosshall not assign, amend, abrogate or waive the Second Subsidiary Loan Agreement or anyprovision thereof.

Section 2.02. Except as the Association shall otherwise agree, procurement of thegoods, works and consultants' services required for the Project and to be financed out ofthe proceeds of the Credit shall be governed by the provisions of Schedule 3 to theDevelopment Credit Agreement.

Section 2.03 Lagos shall duly perform all its obligations under the FirstSubsidiary Loan Agreement. Except as the Association shall otherwise agree, Lagosshall not take or concur in any action which would have the effect of amending,abrogating, assigning or waiving the First Subsidiary Loan Agreement, the SecondSubsidiary Loan Agreement, or any provision thereof.

- 3 -

Section 2.04. Lagos shall:

(a) cause LAMATA to open and maintain accounts in Naira in a commercialbank acceptable to the Borrower and the Association on terms and conditions satisfactoryto the Association (the "Project Account");

(b) promptly thereafter, make an initial deposit equivalent to 375,000,000Naira into the said Project Account, to finance Lagos' contribution to the costs of theProject;

(c) thereafter deposit into the Project Account, on a quarterly basis, theamount required to replenish said Project Account up to Lagos' contribution to the costsof the Project; and

(d) ensure that the funds in said Project Account are used exclusively tofinance expenditures under the Project and not otherwise financed out of the proceeds ofthe Credit.

Section 2.05. (a) Each fiscal year commencing with 2003, Lagos shall contributenot less than US$7,000,000 equivalent, calculated at the exchange rate in effect on thedates of deposit.

(b) The amount deposited into the Transport Fund derived from user chargesshall be at least $1,400,000 for fiscal year 2003, $2,800,000 for fiscal year 2004,$4,200,000 for fiscal year 2005; $5,600,000 for fiscal year 2006; and $7,000,000 forfiscal year 2007.

(c) Deposits into the Transport Fund from user charges shall be transferreddirectly from source.

Section 2.06. (a) Lagos shall, at the request of the Association, exchange viewswith the Association with regard to the progress of the Project, the performance of itsobligations under this Agreement and under the First Subsidiary Loan Agreement, andother matters relating to the purposes of the Credit.

(b) Lagos shall promptly inform the Association of any condition whichinterferes or threatens to interfere with the progress of the Project, the accomplishment ofthe purposes of the Credit, or the performance by Lagos of its obligations under thisAgreement and under the First Subsidiary Loan Agreement.

(c) Lagos shall at all times ensure that the Managing Director and theDirector level staff in LAMATA are maintained with qualifications and terms ofreference satisfactory to the Association.

-4 -

ARTICLE HI

Financial Covenants

Section 3.01. (a) Lagos shall cause LAMATA to maintain a financialmanagement system, including records and accounts, including the Special Account andTransport Fund, and prepare financial statements, all in accordance with accountingstandards acceptable to the Association, consistently applied, adequate to reflect itsoperations and financial condition and to register separately the operations, resources andexpenditures related to the Project.

(b) Lagos shall cause LAMATA to:

(i) have its records and accounts with respect to the Project,including the Special Account, the Project Account, and theTransport Fund, for each fiscal year audited, in accordance withauditing standards acceptable to the Association, consistentlyapplied, by independent auditors acceptable to the Association;

(ii) furnish to the Association as soon as available, but in any casenot later than six months after the end of each such year, (A)certified copies of the financial statements referred to inparagraph (a) of this Section, for such year as so audited, and (B)an opinion on such statements and report of such audit, by saidauditors, of such scope and in such detail as the Associationshall have reasonably requested; and

(iii) furnish to the Association such other information concerningsuch records, accounts and financial statements, and the auditthereof, and concerning said auditors, as the Association mayfrom time to time reasonably request.

ARTICLE IV

Effective Date; Termination;Cancellation and Suspension

Section 4.01. This Agreement shall come into force and effect on the date uponwhich the Development Credit Agreement becomes effective.

- 5 -

Section 4.02. All the provisions of this Agreement Agreement shall continue in fullforce and effect notwithstanding any cancellation or suspension under the GeneralConditions.

ARTICLE V

Miscellaneous Provisions

Section 5.01. Any notice or request required or permitted to be given or madeunder this Agreement and any agreement between the parties contemplated by thisAgreement shall be in writing. Such notice or request shall be deemed to have been dulygiven or made when it shall be delivered by hand or by mail, telex or facsimile to theparty to which it is required or permitted to be given or made at such party's addresshereinafter specified or at such other address as such party shall have designated bynotice to the party giving such notice or making such request. Deliveries made byfacsimile transmission shall also be confirmed by mail. The addresses so specified are:

For the Association:

International Development Association1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex: Facsimile:

INDEVAS 248423 (MCI) or (202) 477 6391Washington, D.C. 64145 (MCI)

For Lagos:

Lagos State Ministry of FinanceSecretariatObafemi Awolowo WayIkejaLagos, Nigeria

-6 -

Cable address: Telex: Facsimile:

Section 5.02. Any action required or permitted to be taken, and any documentrequired or permitted to be executed, under this Agreement on behalf of Lagos may betaken or executed by the Commissioner of Finance or such other person or persons as

Lagos shall designate in writing, and Lagos shall fumish to the Association sufficientevidence of the authority and the authenticated specimen signature of each such person.

Section 5.03. This Agreement may be executed in several counterparts, each ofwhich shall be an original, and all collectively but one instrument.

IN WITNESS WHEREOF, the parties hereto, acting through their dulyauthorized representatives, have caused this Agreement to be signed in their respectivenames in the District of Columbia, United States of America, as of the day and year firstabove written.

INTERNATIONAL DEVELOPMENT ASSOCIATION

ByRegional Vice President

LAGOS STATE

ByAuthorized Representative

Legal DepartmentCONFIDENTIAL DRAFTOctober 10, 2002

CREDIT NUMBER

Project Agreement

(Lagos Urban Transport Project)

between

INTERNATIONAL DEVELOPMENT ASSOCIATION

and

LAGOS METROPOLITAN AREA TRANSPORT AUTHORITY

Dated , 2002

CREDIT NUMBER _

PROJECT AGREEMENT

AGREEMENT, dated , 2002, betweenINTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and LAGOSMETROPOLITAN AREA TRANSPORT AUTHORITY (LAMATA).

WHEREAS (A) by the Development Credit Agreement of even date herewithbetween Federal Republic of Nigeria (the Borrower) and the Association, the Associationhas agreed to make available to the Borrower an amount in various currencies equivalentto seventy-five million five hundred thousand Special Drawing.Rights (SDR 75,500,000),on the terms and conditions set forth in the Development Credit Agreement, but only onconditions that LAMATA agree to undertake such obligations toward the Association asare set forth in this Agreement;

(B) by a Second Subsidiary Loan Agreement to be entered into betweenLAGOS and LAMATA, the proceeds of the credit loaned to LAGOS under the FirstSubsidiary Loan Agreement will be made available to LAMATA on the terms andconditions set forth in said Second Loan Subsidiary Agreement; and

WHEREAS LAMATA, in consideration of the Association's entering into theDevelopment Credit Agreement with the Borrower, has agreed to undertake theobligations set forth in this Agreement;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTICLE I

Definitions

Section 1.01. Unless the context otherwise requires, the several terms defined inthe Development Credit Agreement, the Preamble to this Agreement and in the GeneralConditions (as so defined) have the respective meanings therein set forth.

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ARTICLE H

Execution of the Project

Section 2.01. LAMATA declares its commitment to the objectives of the Projectas set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shallcarry out the Project with due diligence and efficiency and in conformity with appropriateadministrative, financial, engineering and transportation practices, and shall provide, orcause to be provided, promptly as needed, the funds, facilities, services and otherresources required for the Project.

Section 2.02. Except as the Association shall otherwise agree, procurement of thegoods, works and consultants' services required for the Project and to be financed out ofthe proceeds of the Credit shall be governed by the provisions of Schedule 3 to the CreditAgreement.

Section 2.03. (a) LAMATA shall carry out the obligations set forth in Sections9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, useof goods and services, plans and schedules, records and reports, and maintenance,respectively) in respect of the Project Agreement.

(b) For the purposes of Section 9.06 of the General Conditions and withoutlimitation thereto, LAMATA shall:

(i) prepare, on the basis of guidelines acceptable to the Associationand furnish to the Association not later than six (6) months afterthe Closing Date or such later date as may be agreed for thispurpose between the Association and LAMATA, a plan for thefuture operation of the Project; and

(ii) afford the Association a reasonable opportunity to exchangeviews with LAMATA on said plan.

Section 2.04. LAMATA shall duly perform all its obligations under the SecondSubsidiary Loan Agreement. Except as the Association shall otherwise agree, LAMATAshall not take or concur in any action which would have the effect of amending,abrogating, assigning or waiving the Second Subsidiary Loan Agreement or anyprovision thereof.

Section 2.05. (a) LAMATA shall, at the request of the Association, exchangeviews with the Association with regard to the progress of the Project, the performance of

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its obligations under this Agreement and under the Second Subsidiary Loan Agreement,and other matters relating to the purposes of the Credit.

(b) LAMATA shall promptly inform the Association of any condition whichinterferes or threatens to interfere with the progress of the Project, the accomplishment ofthe purposes of the Credit, or the performance by LAMATA of its obligations under thisAgreement and under the Second Subsidiary Loan Agreement.

ARTICLE III

Management and Operations of LAMATA

Section 3.01. LAMATA shall carry on its operations and conduct its affairs inaccordance with sound administrative, financial and transportation practices under thesupervision of qualified and experienced management assisted by competent staff inadequate numbers.

Section 3.02. LAMATA shall at all times operate and maintain its plant,machinery, equipment and other property, and from time to time, promptly as needed,make all necessary repairs and renewals thereof, all in accordance with soundengineering, financial and transportation practices.

Section 3.03. LAMATA shall take out and maintain with responsible insurers, ormake other provision satisfactory to the Association for, insurance against such risks andin such amounts as shall be consistent with appropriate practice.

Section 3.04. LAMATA shall carry out procurement in accordance withprocurement regulations satisfactory to the Association.

Section 3.05. (a) LAMATA shall implement the Project in accordance with theEnvironmental Management Framework.

(b) LAMATA shall prepare and furnish to the Association, for each road tobe upgraded, an Environmental Management Plan, satisfactory to the Association, andthereafter implement such Plan accordingly.

Section 3.06. LAMATA shall, prior to commencing any road upgrading underPart B of the Project which would displace any Affected Persons or adversely affect theirstandards of living, or their rights, usufructs or customary rights to land or other resourcesunder the Project:

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(i) all rights to land, usufructs or customary rights and otherproperty are allocated or acquired, compensation therefore is

paid and resettlement is carried out in accordance with theprinciples and institutional procedures established in theResettlement Policy Framework and the EnvironmentalManagement Plan;

(ii) for each road upgrading where there are Affected Persons, adetailed resettlement action plan acceptable to the Association isprepared and furnished to the Association;

(iii) a conflict resolution committee is appointed;

(iv) Affected Persons shall be compensated, resettled andrehabilitated in accordance with the Resettlement PolicyFramework;

(v) the implementation arrangements for resettlement, includingcompensation, relocation and rehabilitation of Affected Personsare documented; and

(vi) the implementation of such resettlement action plan is completedin a manner satisfactory to the Association.

ARTICLE IV

Financial Covenants

Section 4.01. (a) LAMATA shall maintain a financial managementsystem, including records and accounts, and prepare financial statemerifs, all inaccordance with accounting standards acceptable to the Association, consistently applied,adequate to reflect its operations and financial condition and to register separately theoperations, resources and expenditures related to the Project.

(b) LAMATA shall:

(i) have its records, accounts and financial statements (balancesheets, statements of income and expenses and relatedstatements, the Special Account, the Project Account, and theTransport Fund) for each fiscal year audited, in accordance with

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auditing standards acceptable to the Association, consistentlyapplied, by independent auditors acceptable to the Association;

(ii) fumish to the Association as soon as available, but in any casenot later than six months after the end of each such year, (A)certified copies of the financial statements referred to inparagraph (a) of this Section, for such year as so audited, and (B)an opinion on such statements and report of such audit, by saidauditors, of such scope and in such detail as the Association shallhave reasonably requested; and

(iii) furnish to the Association such other information concerningsuch records, accounts and financial statements, and the auditthereof, and concerning said auditors, as the Association mayfrom time to time reasonably request.

Section 4.02. (a) Without limitation upon LAMATA's progress reportingobligations set out in Schedule 4 to the Credit Agreement, LAMATA shall prepare andfurnish to the Association a financial monitoring report, in formn and substancesatisfactory to the Association, which:

(i) sets forth sources and uses of funds for the Project, bothcumulatively and for the period covered by said report, showingseparately funds provided under the Credit, and explainsvariances between the actual and planned uses of such funds;

(ii) describes physical progress in Project implementation, bothcumulatively and for the period covered by said report, andexplains variances between the actual and planned Projectimplementation; and

(iii) sets forth the status of procurement under the Project; as at theend of the period covered by said report.

(b) The first FMR shall be furnished to the Association not later than 45days after the end of the first calendar quarter after the Effective Date, and shall cover theperiod from the incurrence of the first expenditure under the Project through the end ofsuch first calendar quarter; thereafter, except as provided for in paragraphs (c) and (d)below, each FMR shall be furnished to the Association not later than 45 days after eachsubsequent calendar quarter, and shall cover such calendar quarter.

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(c) LAMATA may, at any time during Project implementation, submit arequest to the Association for withdrawals from the Credit Account to be made on thebasis of amplified financial monitoring reports in accordance with the provisions ofparagraph 2 (b) of Schedule I to the Credit Agreement, together with an amplified

financial monitoring report for the preceding calendar quarter, in form and substancesatisfactory to the Association, which:

(i) (A) sets forth actual sources and uses of funds for the Project,both cumulatively and for the period covered by said report, andprojected sources and uses of funds for the Project for the six-month period following the period covered by said report, and(B) shows separately expenditures financed out of the proceedsof the Credit during the period covered by said report andexpenditures proposed to be financed out of the proceeds of theCredit during the six-month period following the period coveredby said report;

(ii) (A) describes physical progress in Project implementation, bothcumulatively and for the period covered by said report, and (B)explains variances between the actual implementation andpreviously forecast implementation targets; and

(iii) sets forth the status of procurement under the Project andexpenditures under contracts financed out of the proceeds of theCredit, as at the end of the period covered by said report.

(d) if the Association agrees to LAMATA's request referred to in paragraph(c) above, LAMATA shall thereafter prepare and fumish to the Association within45 days after the end of each calendar quarter an Amplified FMR in respect of suchquarter.

Section 4.03. (a) Except as LAMATA and the Association shall otherwise agree,LAMATA shall not, starting in fiscal year 2003, incur any debt, unless the net revenuesof LAMATA for the fiscal year immediately preceding the date of such incurrence or fora later twelve-month period ended prior to the date of such incurrence, whichever is thegreater, shall be at least two (2) times the estimated maximum debt service requirementsof LAMATA for any succeeding fiscal year on all debts of LAMATA, including the debtincurred.

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(b) For the purposes of this Section 4.03:

(i) The term "debt" means any indebtedness of LAMATA maturingby its terms more than one year after the date on which it isoriginally incurred.

(ii) Debt shall be deemed incurred: (A) under a loan contract oragreement or other instrument providing for such debt or for themodification of its terms of payment on the date of such contract,agreement or instrument; and (B) under a guarantee agreementon the date the agreement providing for such guarantee has beenentered into.

(iii) The term "net revenues" means the difference between: (A) thesum of revenues from all sources related to operations; and (B)the sum of all expenses related to operations includingadministration, adequate maintenance, taxes and payments inlieu of taxes, but excluding depreciation, other non-cashoperating charges and interest and other charges.

(iv) The term "debt service requirements" means the aggregateamount of repayments of and interest and other charges on debt.

Section 4.04.(a) Except as LAMATA and the Association shall otherwise agree,LAMATA shall maintain for each of its fiscal years starting in fiscal year 2003, a ratio oftotal operating expenses to total expenditures smaller than 6%.

(b) For the purposes of this Section 4.04:

(i) The term "total operating expenses" means all expenses relatedto operations, including administration, adequate maintenance,taxes and payments in lieu of taxes, and provision fordepreciation on a basis acceptable to the Association of thecurrent gross value of LAMATA's fixed assets in operation, butexcluding interest and other charges on debt.

(ii) The term "total expenditures" means expenditures incurred forworks, payment of personnel, expenditures incurred for the useof goods, facilities and services, expenditures incurred forinterest, and capital expenditures.

- 8 -(iii) The average current gross value of LAMATA's fixed assets in

operation shall be calculated as one half of the sum of the grossvalue of LAMATA's fixed assets in operation at the beginningand at the end of the fiscal year, as valued from time to time inaccordance with sound and consistently maintained methods ofvaluation satisfactory to the Association.

Section 4.05. LAMATA shall:

(a) prepare and furnish to the Association for its review and comment byDecember 31 of each year commencing in 2003, an updated annual business plan for theoperation, maintenance and sustainability of its functions, and thereafter

(b) implement such business plan taking into consideration the Association'scomments thereon.

ARTICLE V

Effective Date; Termination;Cancellation and Suspension

Section 5.01. This Agreement shall come into force and effect on the date uponwhich the Development Credit Agreement becomes effective.

Section 5.02. All the provisions of this Agreement shall continue in full force andeffect notwithstanding any cancellation or suspension under the General Conditions.

ARTICLE VI

Miscellaneous Provisions

Section 6.01. Any notice or request required or permitted to be given or madeunder this Agreement and any agreement between the parties contemplated by thisAgreement shall be in writing. Such notice or request shall be deemed to have been dulygiven or made when it shall be delivered by hand or by mail, telex or facsimile to theparty to which it is required or permitted to be given or made at such party's addresshereinafter specified or at such other address as such party shall have designated bynotice to the party giving such notice or making such request. Deliveries made byfacsimile transmission shall also be confirmed by mail. he addresses so specified are:

For the Association:

- 9 -International Development Association1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex: Facsimile:

INDEVAS 248423 (MCI) or (202) 477-6391Washington, D.C. 64145 (MCI)

For LAMATA:

Lagos Metropolitan Transport AuthorityBlock C, 2d Floor, Motorways Centre1, Motorways AvenueOpp. 7Up,Near Former Lagos Toll GateAlausa, IkejaLagos, Nigeria

Cable address: Telex: Facsimile:

Section 6.02. Any action required or permitted to be taken, and any documentrequired or permitted to be executed, under this Agreement on behalf of LAMATA maybe taken or executed by the Managing Director or such other person or persons asLAMATA shall designate in writing, and LAMATA shall furnish to the Associationsufficient evidence of the authority and the authenticated specimen signature of each suchperson.

Section 6.03. This Agreement may be executed in several counterparts, each ofwhich shall be an original, and all collectively but one instrument.

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IN WITNESS WHEREOF, the parties hereto, acting through their dulyauthorized representatives, have caused this Agreement to be signed in their respectivenames in the District of Columbia, United States of America, as of the day and year firstabove written.

INTERNATIONAL DEVELOPMENT ASSOCIATION

ByRegional Vice President

LAGOS METROPOLITAN AREA TRANSPORT AUTHORITY

ByAuthorized Representative

Legal DepartmentCONFIDENTIAL DRAFTOctober 10, 2002

CREDIT NUMBER

Development Credit Agreement

(Lagos Urban Transport Project)

between

FEDERAL REPUBLIC OF NIGERIA

and

INTERNATIONAL DEVELOPMENT ASSOCIATION

Dated , 2002

CREDIT NUMBER

DEVELOPMENT CREDIT AGREEMENT

AGREEMENT, dated , 2002, between FEDERALREPUBLIC OF NIGERIA (the Borrower) and INTERNATIONAL DEVELOPMENTASSOCIATION (the Association).

WHEREAS (A) the Association has received a letter dated June 19, 2002 fromLagos State describing a program (the Program) designed to improve transport services inthe Lagos metropolitan area, in particular for public transport users and for the poor by:(i) maximizing use of existing capacity; (ii) promoting private sector participation andcompetition; (iii) raising cost-recovery and ensuring sustainability; (iv) regulating quality,externalities and competition in the transport sector; (v) developing human resources; (vi)providing safety nets; and (vii) involving stakeholders in the development process anddeclaring Lagos State's commitment to the execution of the Program;

(B) the Borrower, having satisfied itself as to the feasibility and priority ofthe Project described in Schedule 2 to this Agreement, has requested the Association toassist in the financing of the Project;

(C) the Project will be carried out by Lagos Metropolitan Area TransportAuthority (LAMATA) with the assistance of Lagos State and the Borrower and, as partof such assistance, the Borrower will relend to Lagos State the proceeds of the Credit asprovided in this Agreement;

(D) Lagos State will in turn make the proceeds of the Credit relent to it bythe Borrower available to LAMATA under terms and conditions which shall have beenapproved by the Association;

WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing,to extend the Credit to the Borrower upon the terms and conditions set forth in thisAgreement and in the agreements of even date herewith between the Association andLagos State (the Lagos State Project Agreement) and between the Association andLAMATA (the LAMATA Project Agreement);

NOW THEREFORE the parties hereto hereby agree as follows:

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ARTICLE I

General Conditions; Definitions

Section 1.01. The "General Conditions Applicable to Development CreditAgreements" of the Association, dated January 1, 1985 (as amended through October 6,1999 (the General Conditions), constitute an integral part of this Agreement.

Section 1.02. Unless the context otherwise requires, the several terms defined inthe General Conditions and in the Preamble to this Agreement have the respectivemeanings therein set forth and the following additional terms have the followingmeanings:

(a) "Affected Person" means a person who on account of the acquisition ofland, for purposes of rehabilitation of the road network under Part B of the Project had orwould have his or her: (i) standard of living adversely affected; or (ii) right, title orinterest in any house, or interest in or right to use any land (including premises,agricultural and grazing land) or right in annual or perennial crops and trees or any otherfixed or movable asset, acquired or possessed, temporarily or permanently; or (iii)business, occupation, work or place of residence or habitat adversely affected,temporarily or permanently, and "Affected Persons" means, collectively, all persons whoqualify as an Affected Person.

(b) "Eligible Categories" means categories (1), (2) and (3) set forth in thetable in Part A. I of Schedule 1 to this Agreement.

(c) "Eligible Expenditures" means the expenditures for goods and servicesreferred to in Section 2.02 of this Agreement.

(d) "Environmental Management Framework" means the set of mitigation,enhancement, monitoring, and institutional measures dated May 9, 2002 to be takenduring design, implementation and operation of any road upgrading to eliminate anyadverse environmental and social impacts, offset them, or reduce them to acceptablelevels, or to enhance positive impacts, including a plan of actions needed to implementsuch measures;

(e) "Financial Monitoring Report" means each report prepared in accordancewith Section 4.02 of the LAMATA Project Agreement (as hereinafter defined);

(f) "First Subsidiary Loan Agreement" means the agreement to be enteredinto between the Borrower and Lagos State pursuant to Section 3.01 (c) of thisAgreement, as the same may be amended from time to time, and such term includes allschedules to the First Subsidiary Loan Agreement;

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(g) "IAPSO" means the Inter-Agency Procurement Services of the UnitedNations;

(h) "LAMATA" means the Lagos Metropolitan Area Transport Authority,an Agency under the State of Lagos, operating pursuant to Law No. _ of 2002 of LagosState Laws;

(i) "Lagos State Project Agreement" means the agreement between theAssociation and Lagos State of even date herewith, as the same may be amended fromtime to time, and such term includes all schedules and agreements supplemental to suchProject Agreement;

(j) "LAMATA Project Agreement" means the agreement between theAssociation and LAMATA of even date herewith, as the same may be amended fromtime to time, and such term includes all schedules and agreements supplemental to suchProject Agreement;

(k) "Project Implementation Manual" means the Project ImplementationManual adopted by the Borrower, Lagos State and LAMATA, and giving details ofprocurement and disbursement arrangements, performance indicators and otheradministrative, financial and organizational arrangements, including a financialmanagement and accounting system as shall have been agreed with the Association forpurposes of the implementation of activities under the Project, as same may be amendedfrom time to time with the prior agreement of the Association, and such term includesany schedules to the Project Implementation Manual;

(I) "Resettlement Policy Framework" means the Resettlement PolicyFramework, dated June 20, 2002, which sets out a framework of principles andprocedures governing acquisition of rights to land, resettlement and compensation, aswell as reporting and monitoring arrangements to ensure compliance with saidframework, as said framework may be revised from time to time with the agreement ofthe Association.

(m) "Second Subsidiary Loan Agreement" means the agreement to be enteredinto between Lagos State and LAMATA, pursuant to the First Subsidiary LoanAgreement, as the same may be amended from time to time, and such term includes allschedules to the Second Subsidiary Loan Agreement;

(n) "Special Account" means the account referred to in Part B of Schedule 1to this Agreement; and

(o) "Transport Fund" means the Fund to be established by LAMATA for thecollection of road user charges.

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ARTICLE II

The Credit

Section 2.01. The Association agrees to lend to the Borrower, on the terms andconditions set forth or referred to in the Development Credit Agreement, an amount invarious currencies equivalent to seventy five million five hundred thousand SpecialDrawing Rights (SDR 75,500,000).

Section 2.02. The amount of the Credit may be withdrawn from the CreditAccount in accordance with the provisions of Schedule I to this Agreement forexpenditures made (or, if the Association shall so agree, to be made) in respect of thereasonable cost of goods and services required for the Project and to be financed out ofthe proceeds of the Credit.

Section 2.03. The Closing Date shall be June 30, 2008 or such later date as theAssociation shall establish. The Association shall promptly notify the Borrower of suchlater date.

Section 2.04. (a) The Borrower shall pay to the Association a cornmitment chargeon the principal amount of the Credit not withdrawn from time to time at a rate to be setby the Association as of June 30 of each year, but not to exceed the rate of one-half ofone percent (1/2 of 1%) per annum.

(b) The commitment charge shall accrue: (i) from the date sixty days afterthe date of this Agreement (the accrual date) to the respective dates on which amountsshall be withdrawn by the Borrower from the Credit Account or canceled; and (ii) at therate set as of the June 30 immediately preceding the accrual date and at such other ratesas may be set from time to time thereafter pursuant to paragraph (a) above. The rate set asof June 30 in each year shall be applied from the next date in that year specified inSection 2.06 of this Agreement.

(c) The commitment charge shall be paid: (i) at such places as theAssociation shall reasonably request; (ii) without restrictions of any kind imp6sced by, orin the territory of, the Borrower; and (iii) in the currency specified in this Agreement forthe purposes of Section 4.02 of the General Conditions or in such other eligible currencyor currencies as may from time to time be designated or selected pursuant to theprovisions of that Section.

Section 2.05. The Borrower shall pay to the Association a service charge at therate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of theCredit withdrawn and outstanding from time to time.

Section 2.06. Commitment charges and service charges shall be payablesemiannually on March I and September 1 in each year.

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Section 2.07. (a) Subject to paragraphs (b), (c) and (d) below, the Borrower shallrepay the principal amount of the Credit in semiannual installments payable on each

March 1 and September 1 commencing March 1, 2013 and ending September 1, 2042.

Each installment to and including the installment payable on September 1, 2022 shall be

one and one-fourth percent (1-1/4%) of such principal amount, and each installmentthereafter shall be two and one-half percent (2-1/2%) of such principal amount.

(b) Whenever: (i) the Borrower's per capita gross national product (GNP), as

determined by the Association, shall have exceeded for three consecutive years the level

established annually by the Association for determining eligibility to access theAssociation's resources; and (ii) the Bank shall consider the Borrower creditworthy for

Bank lending, the Association may, subsequent to the review and approval thereof by theExecutive Directors of the Association and after due consideration by them of thedevelopment of the Borrower's economy, modify the repayment of installments underparagraph (a) above by:

(A) requiring the Borrower to repay twice the amount of each suchinstallment not yet due until the principal amount of the Creditshall have been repaid; and

(B) requiring the Borrower to commence repayment of the principalamount of the Credit as of the first semiannual payment datereferred to in paragraph (a) above falling six months or moreafter the date on which the Association notifies the Borrower thatthe events set out in this paragraph (b) have occurred, provided,however, that there shall be a grace period of a minimum of fiveyears on such repayment of principal.

(c) If so requested by the Borrower, the Association may revise themodification referred to in paragraph (b) above to include, in lieu of some or all ofthe increase in the amounts of such installments, the payment of interest at an annual rateagreed with the Association on the principal amount of the Credit withdrawn andoutstanding from time to time, provided that, in the judgment of the Association, suchrevision shall not change the grant element obtained under the above-mentionedrepayment modification.

(d) If, at any time after a modification of terms pursuant to paragraph (b)above, the Association determines that the Borrower's economic condition hasdeteriorated significantly, the Association may, if so requested by the Borrower, furthermodify the terms of repayment to conform to the schedule of installments as provided inparagraph (a) above.

Section 2.08. The currency of the United States of America is hereby specifiedfor the purposes of Section 4.02 of the General Conditions.

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ARTICLE III

Execution of the Project

Section 3.01. (a) The Borrower declares its commitment to the objectives of theProject as set forth in Schedule 2 to this Agreement, and, to this end, without anylimitation or restriction upon any of its other obligations under the Development CreditAgreement, shall within the limits of its constitutional powers cause Lagos State andLAMATA to carry out the Project and to perform in accordance with the provisions ofthe Lagos State Project Agreement and the LAMATA Project Agreement all theobligations of Lagos State and LAMATA therein set forth, shall take or cause to be takenall actions, including the provision of funds, facilities, services and other resources,necessary or appropriate to enable Lagos State and LAMATA to perform suchobligations, and shall not take or permit to be taken any action which would prevent orinterfere with such performance.

(b) Without limitation upon the provisions of paragraph (a) of this Sectionand except as the Borrower and the Association shall otherwise agree, the Borrower shallcause Lagos State to ensure that the Project is carried out in accordance with theImplementation Program set forth in Schedule 4 to this Agreement.

(c) The Borrower shall relend the proceeds of the Credit to Lagos Stateunder a First Subsidiary Loan Agreement to be entered into between the Borrower andLagos State, under terms and conditions which shall have been approved by theAssociation and which shall include annual interest at the rate referred to in Section 2.05of this Agreement and repayment of principal in forty years (including a ten-year graceperiod).

(d) The Borrower shall exercise its rights under the First Subsidiary LoanAgreement in such manner as to protect the interests of the Borrower and the Associationand to accomplish the purposes of the Credit and, except as the Association shallotherwise agree, the Borrower shall not assign, amend, abrogate or waive the FirstSubsidiary Loan Agreement or any provision thereof

Section 3.02. Except as the Association shall otherwise agree, procurement of thegoods, works and consultants' services required for the Project and to be financed out ofthe proceeds of the Credit shall be governed by the provisions of Schedule 3 to thisAgreement.

Section 3.03. The Borrower and the Association hereby agree that the obligationsset forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions(relating to insurance, use of goods and services, plans and schedules, records andreports, and maintenance, respectively) shall be carried out by LAMATA pursuant toSection 2.03 of the LAMATA Project Agreement.

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Section 3.04. (a) The Borrower shall cause Lagos State to ensure that the Projectis implemented in accordance with the Environmental Management Framework.

(b) The Borrower shall cause Lagos State to ensure that, for each road to beupgraded, an Environmental Management Plan, satisfactory to the Association, isprepared and furnished to the Association and thereafter shall ensure that such Plan isimplemented accordingly.

Section 3.05. The Borrower shall cause Lagos State, prior to permitting any roadupgrading under Part B of the Project to be commenced which would displace anyAffected Persons or adversely affect their standards of living, or their rights, usufructs orcustomary rights to land or other resources under the Project, to ensure that:

(i) all rights to land, usufructs or customary rights and otherproperty are allocated or acquired, compensation therefor is paidand resettlement is carried out in accordance with the principlesand institutional procedures established in the ResettlementPolicy Framework and the Environmental Management Plan;

(ii) for each road upgrading where there are Affected Persons, adetailed resettlement action plan acceptable to the Association isprepared and furnished to the Association;

(iii) a conflict resolution committee is appointed;

(iv) Affected Persons shall be compensated, resettled andrehabilitated in accordance with the Resettlement PolicyFramework;

(v) the implementation arrangements for resettlement, includingcompensation, relocation and rehabilitation of Affected Personsare documented; and

(vi) the implementation of such resettlement action plan is completedin a manner satisfactory to the Association.

Section 3.06. For the purposes of Section 9.08 of the General Conditions andwithout limitation thereto, the Borrower shall cause Lagos State to:

(a) ensure that, on the basis of guidelines acceptable to the Association, theAssociation is furnished not later than six months after the Closing Date or such later dateas may be agreed for this purpose between the Borrower and the Association, a plan toensure the continued achievement of the objectives of the Project; and

(b) afford the Association a reasonable opportunity to exchange-views on said plan.

- 8 -

ARTICLE IV

Remedies of the Association

Section 4.0 I.Pursuant to Section 6.02 (1) of the General Conditions, the followingadditional events are specified:

(a) a situation shall have arisen which will make it improbable that theProgram or a significant part thereof will be carried out.

(b) LAMATA shall have failed to perform any of its obligations under theLAMATA Project Agreement.

(c) Lagos State shall have failed to perform any of its obligations under theLagos State Project Agreement.

(d) As a result of events which have occurred after the date of theDevelopment Credit Agreement, an extraordinary situation shall have arisen which shallmake it improbable that LAMATA will be able to perform its obligations under theLAMATA Project Agreement.

(e) Law No. __ of 2002 of Lagos State Laws shall have been amended,suspended, abrogated, repealed or waived so as to affect materially and adversely theability of LAMATA to perform any of its obligations under the LAMATA ProjectAgreement.

Section 4.02. Pursuant to Section 7.01 (h) of the General Conditions, thefollowing additional events are specified, namely that the events specified in paragraphs(a), (b), (c) and (d) of Section 4.01Of this Agreement shall occur.

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ARTICLE V

Effective Date; Termination

Section 5.01. The following events are specified as additional conditions to the

effectiveness of the Development Credit Agreement within the meaning of Section 12.01

(b) of the General Conditions:

(a) the First Subsidiary Loan Agreement has been executed on behalf of the

Borrower and Lagos State;

(b) the Second Subsidiary Loan Agreement has been executed on behalf of

Lagos State and LAMATA;

(c) the Managing Director of LAMATA has assumed duty, together with

heads of procurement, finance, internal audit, and safeguard units, and duly qualified andtrained support staff for such units, all in accordance with the provisions of Section II of

Schedule 3 to this Agreement;

(d) LAMATA has established a financial management system acceptable to

the Association, and has carried out capacity training;

(e) LAMATA has appointed, in accordance with the provisions of Section IIof Schedule 3 to this Agreement, an independent auditor for auditing of the Project, the

Transport Fund and the special account;

(f) The Borrower and Lagos State have entered into an Agreement,

satisfactory to the Association, whereby Lagos State has agreed to assume responsibilityfor management of the federal roads in Lagos State forming part of the declared roadnetwork; and

(g) LAMATA has opened the Project Account and deposited in the ProjectAccount the initial deposit referred to in Section 2.04 of the Lagos State Project

Agreement.

Section 5.02. The following are specified as additional matters, within the

meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion oropinions to be furnished to the Association:

(a) that the Lagos State Project Agreement has been duly authorized orratified by Lagos State, and is legally binding upon Lagos State in accordance with its

terms;

- 10-

(b) that the LAMATA Project Agreement has been duly authorized orratified by LAMATA, and is legally binding upon LAMATA in accordance with itsterms;

(c) that the First Subsidiary Loan Agreement has been duly authorized orratified by the Borrower and Lagos State and is legally binding upon the Borrower andLagos State in accordance with its terms; and

(d) that the Second Subsidiary Loan Agreement has been duly authorized orratified by the Lagos State and LAMATA and is legally binding upon Lagos State andLAMATA in accordance with its terms.

Section 5.03. The date ninety (90) days after the date of this Agreement is herebyspecified for the purposes of Section 12.04 of the General Conditions.

ARTICLE VI

Representative of the Borrower; Addresses

Section 6.01. The minister of the Borrower responsible for finance is designatedas representative of the Borrower for the purposes of Section 11.03 of the GeneralConditions.

Section 6.02. The following addresses are specified for the purposes of Section1 1.01 of the General Conditions:

For the Borrower:

The Honourable MinisterFederal Ministry of FinanceAhmadu Bello WayAbuja, Nigeria

Cable address:

FEDMINFINAbuja

For the Association:

International Development Association1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex: Facsimile:INDEVAS 248423 (MCI) or (202) 477 6391Washington, D.C. 64145 (MCI)

IN WITNESS WHEREOF, the parties hereto, acting through their dulyauthorized representatives, have caused this Agreement to be signed in their respectivenames in the District of Columbia, United States of America, as of the day and year firstabove written.

FEDERAL REPUBLIC OF NIGERIA

ByAuthorized Representative

INTERNATIONAL DEVELOPMENT ASSOCIATION

ByRegional Vice President

- 12-

SCHEDULE 1

Withdrawal of the Proceeds of the Credit

A. General

1. The table below sets forth the Categories of items to be financed out of theproceeds of the Credit, the allocation of the amounts of the Credit to each Categoryand the percentage of expenditures for items so to be financed in each Category:

Amount of theCredit Allocated % of

(Expressed in ExpendituresCate ory SDR Equivalent) to be Financed

(1) Works 49,500,000 100% of foreignexpenditures and80% of localexpenditures

(2) Goods 1,640,000 100% of foreignexpenditures and80% of localexpenditures

(3) Consultants' 16,430,000 90%services, trainingand audits

(4) Unallocated 7,930,000

TOTAL 75,500,000

- 13 -

2. For the purposes of this Schedule:

(a) the term "foreign expenditures" means expenditures in the currency of

any country other than that of the Borrower for goods or services supplied from the

territory of any country other than that of the Borrower; and

(b) the term "local expenditures" means expenditures in the currency of the

Borrower or for goods or services supplied from the territory of the Borrower.

3. Notwithstanding the provisions of paragraph I above, no withdrawals shall be

made in respect of payments made for expenditures prior to the date of this Agreement

4. The Association may require withdrawals from the Credit Account to be made on

the basis of statements of expenditure for expenditures (i) goods under contracts not

exceeding $150,000 equivalent; (ii) works under contracts not exceeding $ 500,000;

(iii) consultants' services (firms) under contracts not exceeding $100,000 equivalent,

(iv) consultants' services (individuals) under contracts not exceeding $50,000 equivalent;

and (v) training under such terms and conditions as the Association shall specify by

notice to the Borrower.

B. Special Account

1. The Borrower shall open and maintain in Dollars a separate special deposit

account, in a commercial bank, on terms and conditions satisfactory to the Association,

including appropriate protection against set-off, seizure and attachment.

2. After the Association has received evidence satisfactory to it that the Special

Account has been opened, withdrawals from the Credit Account of amounts to be

deposited into the Special Account shall be made as follows:

(a) until the Association shall have received (i) the first Financial

Monitoring Report referred to in Section 4.02(c) of the Project Agreement and (ii) a

request from the Borrower for withdrawal on the basis of Financial Monitoring Reports,

withdrawals shall be made in accordance with the provisions of Annex A to this

Schedule 1; and

(b) upon receipt by the Association of a Financial Monitoring Report

pursuant to Section 4.02 (b) of the LAMATA Project Agreement, accompanied by a

request from the Borrower for withdrawal on the basis of Financial Monitoring Reports,

all further withdrawals shall be made in accordance with the provisions of Annex B to

this Schedule 1.

3. Payments out of the Special Account shall be made exclusively for Eligible

Expenditures. For each payment made by the Borrower out of the Special Account, the

Borrower shall, at such time as the Association shall reasonably request, furnish to the

- 14 -

Association such documents and other evidence showing that such payment was madeexclusively for Eligible Expenditures.

4. Notwithstanding the provisions of Part B.2 of this Schedule, the Association shallnot be required to make further deposits into the Special Account:

(a) if the Association determnines at any time that any Financial MonitoringReport does not adequately provide the information required pursuant to Section 4.02 ofthis Agreement;

(b) if the Association determines at any time that all further withdrawalsshould be made by the Borrower directly from the Credit Account; or

(c) if the Borrower shall have failed to furnish to the Association within theperiod of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reportsrequired to be furnished to the Association pursuant to said Section in respect of the auditof (A) the records and accounts for the Special Account or (B) the records and accountsreflecting expenditures with respect to which withdrawals were made on the basis ofFinancial Monitoring Reports.

5. The Association shall not be required to make further deposits into the SpecialAccount in accordance with the provisions of Part B.2 of this Schedule if, at any time, theAssociation shall have notified the Borrower of its intention to suspend in whole or inpart the right of the Borrower to make withdrawals from the Credit Account pursuant toSection 6.02 of the General Conditions. Upon such notification, the Association shalldetermine, in its sole discretion, whether further deposits into the Special Account maybe made and what procedures should be followed for making such deposits, and shallnotify the Borrower of its determination.

6. (a) If the Association determines at any time that any payment out of theSpecial Account was made for an expenditure which is not an Eligible Expenditure, orwas not justified by the evidence furnished to the Association, the Borrower shall,promptly upon notice from the Association, provide such additional evidence as theAssociation may request, or deposit into the Special Account (or, if the Association shallso request, refund to the Association) an amount equal to the amount of such-payment.Unless the Association shall otherwise agree, no further deposit by the Association intothe Special Account shall be made until the Borrower has provided such evidence ormade such deposit or refund, as the case may be.

(b) If the Association determines at any time that any amount outstanding inthe Special Account will not be required to cover payments for Eligible Expendituresduring the six-month period following such determination, the Borrower shall, promptlyupon notice from the Association, refund to the Association such outstanding amount.

- 15 -

(c) The Borrower may, upon notice to the Association, refund to theAssociation all or any portion of the funds on deposit in the Special Account.

(d) Refunds to the Association made pursuant to sub-paragraph (a), (b) or (c)of this paragraph 6 shall be credited to the Credit Account for subsequent withdrawal orfor cancellation in accordance with the provisions of the Development Credit Agreement.

- 16 -

Annex A

to

SCHEDULE 1

Operation of Special AccountWhen Withdrawals Are Not Made

On the Basis of Project Monitoring Reports

1 For the purposes of this Annex:

(a) the term "Authorized Allocation" means an amount equivalent to$7,000,000 to be withdrawn from the Credit Account and deposited into the SpecialAccount pursuant to paragraph 2 of this Annex; provided, however, that, unless theAssociation shall otherwise agree, said Authorized Allocation shall be limited to anamount equivalent to $3,500,000, until the aggregate amount of withdrawals from theCredit Account of amounts allocated to said Special Account's Eligible Categories, plusthe total amount of all outstanding special commitments entered into by the Associationpursuant to Section 5.02 of the General Conditions in respect of amounts allocated to saidCategories, shall equal or exceed the equivalent of SDR 15,000,000;

2. Withdrawals of the Special Account's Authorized Allocation and subsequentwithdrawals to replenish the Special Account shall be made as follows:

(a) For withdrawals of the Special Account's Authorized Allocation, theBorrower shall furnish to the Association a request or requests for deposit into the SpecialAccount of an amount or amounts which in the aggregate do not exceed the AuthorizedAllocation. On the basis of each such request, the Association shall, on behalf of theBorrower, withdraw from the Credit Account and deposit into the Special Account suchamount as the Borrower shall have requested.

(b) For replenishment of the Special Account, the Borrower shall furnish tothe Association requests for deposit into the Special Account at such intervals as theAssociation shall specify. Prior to or at the time of each such request, the Borrower shallfurnish to the Association the documents and other evidence required pursuant to Part B.3of Schedule I to this Agreement for the payment or payments in respect of whichreplenishment is requested. On the basis of each such request, the Association shall, onbehalf of the Borrower, withdraw from the Credit Account and deposit into the SpecialAccount such amount as the Borrower shall have requested and as shall have been shownby said documents and other evidence to have been paid out of the Special Account forEligible Expenditures. Each such deposit into the Special Account shall be withdrawn bythe Association from the Credit Account under one or more of the Special Account'sEligible Categories.

3. The Association shall not be required to make further deposits into the SpecialAccount, once the total unwithdrawn amount of the Credit minus the total amount of all

- 17 -

outstanding special commitments entered into by the Association pursuant to Section5.02 of the General Conditions, shall equal the equivalent of twice the amount of theAuthorized Allocation. Thereafter, withdrawal from the Credit Account of the remainingunwithdrawn amount of the Credit shall follow such procedures as the Association shallspecify by notice to the Borrower. Such further withdrawals shall be made only after andto the extent that the Association shall have been satisfied that all such amountsremaining on deposit in the Special Account as of the date of such notice will be utilizedin making payments for Eligible Expenditures.

- 18-

Annex B

to

SCHEDULE 1

Operation of Special AccountWhen Withdrawals Are Made

On the Basis of Financial Monitoring Reports

1. Except as the Association may otherwise specify by notice to the Borrower, allwithdrawals from the Credit Account shall be deposited by the Association into theSpecial Account in accordance with the provisions of Schedule I to this Agreement. Eachsuch deposit into the Special Account shall be withdrawn by the Association from theCredit Account under one or more of the Special Account's Eligible Categories.

2. Each application for withdrawal from the Credit Account for deposit into theSpecial Account shall be supported by a Financial Monitoring Report.

3. Upon receipt of each application for withdrawal of an amount of the Credit, theAssociation shall, on behalf of the Borrower, withdraw from the Credit Account anddeposit into the Special Account an amount equal to the lesser of: (a) the amount sorequested; and (b) the amount which the Association has determined, based on theFinancial Monitoring Report accompanying said application, is required to be depositedin order to finance Eligible Expenditures during the six-month period following the dateof such report; provided, however, that the amount so deposited, when added to theamount indicated by said Financial Monitoring Report to be remaining in the SpecialAccount, shall not exceed the equivalent of $14,000,000.

- 19 -

SCHEDULE 2

Description of the Project

The objective of the Project is to support the Program by: (a) improving the

management of the Lagos metropolitan transport sector; (b) enhancing the publictransport road network in an environmentally, socially and financially sustainablemanner; (c) enhancing bus services; (d) promoting water and non-motorized transport;and (e) prepare future phases of the Program.

The Project consists of the following parts, subject to such modifications thereofas the Borrower and the Association may agree upon from time to time to achieve such

objectives:

Part A: Capacity Building

Establishment of an adequate policy, regulatory and institutional framework forthe management and financing of the transport system of metropolitan Lagos:

1. Establishment of effective operation and management systems for LAMATAincluding procurement, financial management and safeguards and construction of abuilding for LAMATA.

2. Creation of a dedicated Transport Fund to finance LAMATA's operations basedupon user charges.

3. Design and implementation of a communication policy strategy and action planto promote dialogue and build consensus for the policy and regulatory framework for the

transport sector.

4. Strengthening the capacities of Lagos State Ministry of Transportation, Lagos

State Ministry of Works, Lagos State Ministry of Women's Affairs and PovertyAlleviation, and Nigerian Police Traffic Unit to establish an adequate policy, regulatoryand institutional framework for management and financing of the transport system.

5. Establishment of Traffic Management Units in key Local Government Areas.

Part B: Road Network

Enhancing efficiency of the road sector to reduce vehicle operating costs, and

improve the safety of roads and pedestrians, including:

1. Carrying out maintenance works on approximately 650 km of the main roadnetwork and bridges in the metropolitan Lagos area.

- 20 -

2. Rehabilitating and improving major junctions in the metropolitan Lagos areanetwork using low cost Traffic System Management measures.

3. Preparing and implementing low cost Traffic System Management measures toimprove traffic flow in key Local Government Areas.

Part C: Bus Services

Improving the efficiency of bus services through:

1. Establishing a regulatory framework for provision of private sector bus servicesand other public transport.

2. Promotion of pilot privately operated bus operations on selected routes.

Part D: Water Transport

Promotinz water transport and improving modal diversity through:

1. Development and implementation of a plan to improve the use of the waterwaysof Metropolitan Lagos for transport services.

2. Privatization of Lagos State Ferry Services Corporation.

3. Encouragement of private sector participation in the provision of water transportservices.

4. Rehabilitation and construction of terminal facilities.

Part E: Studies

1. Carrying out detailed feasibility studies for the establishment of a framework forthe development of rail mass transit.

2. Preparation of a comprehensive transport master plan for Lagos State.

3. Carrying out studies of the transport sector to support the Program.

The Project is expected to be completed by December 31, 2007.

- 21 -

SCHEDULE 3

Procurement

Section I. Procurement of Goods and Works

Part A: General

Goods and works shall be procured in accordance with (a) the provisions ofSection I of the "Guidelines for Procurement under IBRD Loans and IDA Credits"published by the Bank in January 1995 and revised in January and August 1996,September 1997 and January 1999 (the Guidelines) and the provisions of the followingParts of this Section I.

Part B: International Competitive Bidding

1. Except as otherwise provided in Part C of this Section, goods and works shall beprocured under contracts awarded in accordance with the provisions of Section II of theGuidelines and paragraph 5 of Appendix I thereto.

2. The following provisions shall apply to goods and works to be procured undercontracts awarded in accordance with the provisions of paragraph I of this Part B.

(a) Prequalification

Bidders for works estimated to cost US$1,000,000 or more shall be prequalifiedin accordance with the provisions of paragraphs 2.9 and 2.10 of the Guidelines.

(b) Grouping of contracts

To the extent practicable, contracts for works shall be grouped in bid packagesestimated to cost $1,000,000 equivalent or more each, and contracts for goods shall begrouped in bid packages estimated to cost $150,000 equivalent or more each.

(c) Preference for domestically manufactured goods

The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2thereto shall apply to goods manufactured in the territory of the Borrower.

- 22 -

Part C: Other Procurement Procedures

I. National Competitive Bidding

Works estimated to cost less than $1,000,000 equivalent per contract, up to anaggregate amount not to exceed $45,000,000 equivalent, and goods estimated to cost lessthan $150,000 equivalent per contract, up to an aggregate amount not to exceed$1,620,000 equivalent, may be procured under contracts awarded in accordance with theprovisions of paragraphs 3.3 and 3.4 of the Guidelines.

2. International or National Shopping

Goods estimated to cost less than $30,000 equivalent per contract, up to anaggregate amount not to exceed $1,080,000 equivalent, may be procured under contractsawarded on the basis of international and national shopping procedures in accordancewith the provisions of paragraphs 3.5 and 3.6 of the Guidelines.

3. Procurement from UN Agencies

Vehicles and equipment up to an aggregate amount not to exceed $1,000,000equivalent, may be procured from IAPSO in accordance with the provisions ofparagraph 3.9 of the Guidelines.

Part D: Review by the Association of Procurement Decisions

1. Procurement Planning

Prior to the issuance of any invitations to prequalify for bidding or to bid forcontracts, the proposed procurement plan for the Project shall be furnished to theAssociation for its review and approval, in accordance with the provisions of paragraph Iof Appendix I to the Guidelines. Procurement of all goods and works shall be undertakenin accordance with such procurement plan as shall have been approved by theAssociation, and with the provisions of said paragraph 1.

2. Prior Review

With respect to: (i) each contract for works estimated to cost the equivalent of$500,000Or more; (ii) each contract for goods estimated to cost the equivalent of$150,000 or more; (iii) the first two contracts procured through national competitivebidding procedures; and (iv) all procurement from UN Agencies, the procedures set forthin paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply.

3. Post Review

With respect to each contract not governed by paragraph 2 of this Part, theprocedures set forth in paragraph 4 of Appendix I to the Guidelines shall apply.

- 23 -

Section II. Employment of Consultants

Part A: General

Consultants' services shall be procured in accordance with the provisions ofSections I and IV of the "Guidelines: Selection and Employment of Consultants byWorld Bank Borrowers" published by the Bank in January 1997 and revised inSeptember 1997, January 1999 and May 2002 (the Consultant Guidelines), paragraph Iof Appendix I thereto, Appendix 2 thereto, and the following provisions of this Section.

Part B: Quality- and Cost-based Selection

1. Except as otherwise provided in Part C of this Section, consultants' services shallbe procured under contracts awarded in accordance with the provisions of Section II ofthe Consultant Guidelines, and the provisions of paragraphs 3.13 through 3.18 thereofapplicable to quality- and cost-based selection of consultants.

2. The following provisions shall apply to consultants' services to be procuredunder contracts awarded in accordance with the provisions of the preceding paragraph:the short list of consultants for services, estimated to cost less than $200,000 equivalentper contract, may comprise entirely national consultants in accordance with theprovisions of paragraph 2.7 and footnote 8 of the Consultant Guidelines.

Part C: Other Procedures for the Selection of Consultants

1. Least-cost Selection

Services for assignments of a standard routine nature such as audits andengineering design of simple works may be procured under contracts awarded inaccordance with the provisions of paragraphs 3.1 and 3.6 of the Consultant Guidelines.

2. Selection Based on Consultants' Qualifications

Services estimated to cost less than $100,000 equivalent per contract may beprocured under contracts awarded in accordance with the provisions of paragraphs 3.1and 3.7 of the Consultant Guidelines.

3. Single Source Selection

Services which are estimated to cost less than $100,000 equivalent per contract,may, with the Association's prior agreement, be procured in accordance with theprovisions of paragraphs 3.8 through 3.11 of the Consultant Guidelines.

- 24 -

4. Individual Consultants

Services of individual consultants for tasks that meet the requirements set forth inparagraph 5.1 of the Consultant Guidelines shall be procured under contracts awarded inaccordance with the provisions of paragraphs 5.1 through 5.3 of the ConsultantGuidelines, and may be selected on a sole-source basis in accordance with the provisionsof paragraphs 5.3 and 5.4 of the Consultant Guidelines, subject to prior approval of theAssociation.

Part D: Review by the Association of the Selection of Consultants

I . Selection Planning

A plan for the selection of consultants, which shall include contract costestimates, contract packaging, and applicable selection criteria and procedures, shall befumished to the Association, for its review and approval, prior to the issuance toconsultants of any requests for proposals. Selection of all consultants' services shall beundertaken in accordance with such selection plan (as updated from time to time) as shallhave been approved by the Association.

2. Prior Review

(a) With respect to each contract for the employment of consulting firmsestimated to cost the equivalent of $100,000 or more, the procedures set forth inparagraphs 2, 3 and 5 of Appendix I to the Consultant Guidelines shall apply.

(b) With respect to each contract for the employment of individualconsultants to be selected on a sole source basis, or estimated to cost the equivalent of$50,000 or more, the report on the qualifications and experience of candidates, and theterms of reference and terms of employment of the consultants shall be furnished to theAssociation for its prior review and approval. The contract shall be awarded only afterthe said approval shall have been given. The provisions of paragraph 3 of Appendix I tothe Consultant Guidelines shall also apply to such contracts.

3. Post Review

With respect to each contract not govemed by paragraph 2 of this Part, theprocedures set forth in paragraph 4 of Appendix I to the Consultant Guidelines shallapply.

- 25 -

SCHEDULE 4

Implementation Program

1. The Borrower shall cause the Project to be carried out in accordance with theprovisions of the Project Implementation Manual, and shall not amend or waive anyprovision thereof which, in the opinion of the Association, will materially or adverselyaffect the implementation of the Project.

2. The Borrower shall:

(a) maintain policies and procedures adequate to enable it to monitor andevaluate on an ongoing basis, in accordance with the Environmental Management Planand with indicators satisfactory to the Association, the carrying out of the Project and theachievement of the objectives thereof;

(b) prepare, under terms of reference satisfactory to the Association, andfurnish to the Association, on or about November 30, 2004, a report integrating theresults of the monitoring and evaluation activities performed pursuant to paragraph (a) ofthis Section, on the progress achieved in the carrying out of the Project during the periodpreceding the date of said report and setting out the measures recommended to ensure theefficient carrying out of the Project and the achievement of the objectives thereof duringthe period following such date; and

(c) review with the Association, by December 31, 2004, or such later date asthe Association shall request, the report referred to in paragraph (b) of this Section, and,thereafter, take all measures required to ensure the efficient completion of the Project andthe achievement of the objectives thereof, based on the conclusions and recommendationsof the said report and the Association's views on the matter.

MAP SECTION

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